[LOGO]
Guardian(SM)
PARK AVENUE LIFE
June 30, 2000
Semiannual Report to Policyowners
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The Guardian Separate Account K
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The Guardian Stock Fund
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The Guardian VC 500 Index Fund
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The Guardian VC Asset Allocation Fund
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The Guardian Bond Fund, Inc.
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The Guardian Cash Fund, Inc.
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Gabelli Capital Asset Fund
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Baillie Gifford International Fund
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Baillie Gifford Emerging Markets Fund
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The Guardian Small Cap Stock Fund
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Value Line Centurion Fund, Inc.
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Value Line Strategic Asset Management Trust
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AIM V.I. Capital Appreciation Fund
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AIM V.I. Global Utilities Fund
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AIM V.I. Value Fund
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American Century VP International Fund
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American Century VP Value Fund
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Fidelity VIP Equity-Income Portfolio
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Fidelity VIP High Income Portfolio
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Fidelity VIP II Contrafund(R) Portfolio
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Fidelity VIP II Index 500 Portfolio
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Fidelity VIP III Growth Opportunities Portfolio
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Janus Aspen Aggressive Growth Portfolio
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Janus Aspen Capital Appreciation Portfolio
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Janus Aspen Growth Portfolio
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Janus Aspen Worldwide Growth Portfolio
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MFS Bond Series
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MFS Emerging Growth Series
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MFS Growth With Income Series
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MFS New Discovery Series
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MFS Research Series
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MFS Total Return Series
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Executive Office
7 Hanover Square
New York, New York 10004
Customer Service Office
7 Hanover Square
Specialty Life -- 215 B
New York, New York 10004
1-800-935-4128
Issued by:
The Guardian Insurance &
Annuity Company, Inc.
A wholly owned subsidiary of
The Guardian Life Insurance Company of America
Distributed by:
Guardian Investor Services Corporation
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Fixed-Rate Option
The annual rate of interest for amounts deposited or renewed (on a policy
anniversary) in the Fixed Rate Option during the first six months of 2000 were:
January .............................5.25%
February ............................5.50%
March ...............................5.50%
April ...............................5.50%
May .................................5.50%
June ................................5.75%
Rates paid by the Fixed-Rate Option are subject to change at any time, and
may be higher or lower for new deposits or renewals, but are guaranteed from
the Edate of deposit or renewal to the next policy anniversary.
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Dear Policyowner:
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[Photo of Joseph D. Sargent, CLU, President & CEO]
Dear Policyowner:
As President and Chief Executive Officer of The Guardian Insurance &
Annuity Company, Inc., and its parent, The Guardian Life Insurance Company of
America, I am pleased to send you this Semi-annual Report on the performance of
your Park Avenue Life Policy's separate account and its underlying variable
investment options during the first half of 2000.
Helping You Reach Your Goals
As an owner of a variable life product, you are among a rapidly growing
group of people who are planning for their future with a retirement product that
is linked to the investment markets. A variable life product, such as Park
Avenue Variable Universal Life, may be one of the best ways to prepare for your
retirement and because of the benefits it offers, may help you reach your goals
faster.
This Report tells you how each investment option available in your policy
has performed. Also included is a letter from Frank J. Jones, Ph.D., our chief
investment officer, and interviews with the portfolio managers of the funds that
comprise our investment options. These materials discuss the current economic
environment as well as specific issues that may impact your investment strategy.
I am confident that this information will be invaluable to you as you
assess your financial situation and investment strategies.
Thank you for selecting Guardian to assist you in investing for your
future.
Sincerely,
/s/ Joseph D. Sargent, CLU
Joseph D. Sargent, CLU
President and Chief Executive Officer
The Guardian Insurance & Annuity Company, Inc.
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<PAGE>
SEMIANNUAL REPORT FOR
Park Avenue Life
Park Avenue Variable Universal Life
Table of Contents Portfolio Schedule
Manager of
Interview Investments
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Economic Report 4
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The Guardian Stock Fund 6 62
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The Guardian VC500 Index Fund 10 68
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The Guardian VC Asset Allocation Fund 12 78
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The Guardian Bond Fund, Inc. 14 82
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The Guardian Cash Fund, Inc. 28 88
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Gabelli Capital Asset Fund 16 98
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Baillie Gifford International Fund 18 106
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Baillie Gifford Emerging Markets Fund 20 112
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The Guardian Small Cap Stock Fund 22 118
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Value Line Centurion Fund 24 130
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Value Line Strategic Asset Management Trust 26 138
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American Century VP International Fund 149
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American Century VP Value Fund 171
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Fidelity VIP Equity-Income Portfolio 193
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Fidelity VIP High Income Portfolio 215
Investments offered through The Guardian Insurance & Annuity Company, Inc. are
not deposits or obligations of, or guaranteed or endorsed by, any bank or
depository institution, nor are they federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency. They
involve investment risk, including possible loss of principal amount invested.
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Table of Contents (continued) Portfolio Schedule
Manager of
Interview Investments
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Fidelity VIP II Contrafund Portfolio 241
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Fidelity VIP Index 500 Portfolio 265
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Fidelity VIP III Growth Opportunities Portfolio 287
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Janus Aspen Aggressive Growth Portfolio 307
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Janus Aspen Capital Appreciation Portfolio 327
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Janus Aspen Growth Portfolio 347
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Janus Aspen Worldwide Growth Portfolio 367
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MFS Bond 389
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MFS Emerging Growth Series 413
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MFSGrowth With Income Series 437
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MFS New Discovery Series 461
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MFS Research Series 485
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MFS Total Return Series 507
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AIM V.I. Capital Appreciation Fund 535
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AIM V.I. Global Utilities Fund 549
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AIM V.I. Value Fund 563
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The Guardian Separate Account K 30
For Park Avenue Life Policyowners
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The Guardian Separate Account M 46
For Park Avenue Variable Universal Life Policyowners
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Economic Report
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[Photo of Frank L. Jones, Ph.D., Chief Investment Officer]
Soft and Hard Landings: The Economy and the Stock Market
The current economic expansion, which began during March 1991, is the
longest post-war expansion. Within this sustained economic expansion, there have
been mini-economic cycles. At times, the economy grew at a rate that was thought
to be unsustainable without causing inflation. During those times, Federal
Reserve Bank (Fed) Chairman Alan Greenspan was able to moderate economic growth
without stopping it--that is, execute a "soft landing." At other times, for
example during the fall of 1998 due to the financial problems in Asia, Greenspan
relaxed monetary policy to avert a recession. Overall, during strong and weak
times, Maestro Greenspan has conducted the economy well and continued the long
expansion.
Recently, during late 1999 and early 2000, there was concern about
economic growth, which was considered too rapid and, thus, inflation-inducing.
As a result, Greenspan raised interest rates, referred to as "tightening," six
times since June 30, 1999 by a total of 1.75% (from 4.75% to 6.50%). The
economic reports for the second quarter support the conclusion that the economy
has begun another soft landing. If this proves to be so, the Fed tightenings
could be complete or almost so. There is some risk, however, that the recent
economic softening is a "head fake" and that the economy will restrengthen and
require further Fed tightenings. Currently, though, the markets are performing
on the basis of an expected soft landing.
How does this economic performance relate to the stock market? The S&P 500
Index(1) has returned over 20% per year for five consecutive years. Why the
incredible strength in the stock market? The answer to this question is the old
saying, "It's the economy, stupid." In addition, more recently, the technology
sector has not only supported the economy, including labor productivity, but
also the stock market.
During 1999, the S&P 500 returned 21.04%, and the NASDAQ(2) returned
86.13%. The stock market strength continued through early 2000, following the
strong economy. To better analyze the first half of 2000, divide it into
sub-periods, segregated by beginning/high/low/end, instead of two quarters, as
summarized below.
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Period S&P 500 NASDAQ DJIA
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1/1 to High 4.25% (3/24) 24.10% (3/10) 1.99% (1/14)
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High to Low -11.14% (4/14) -37.30% (5/23) -16.23% (3/7)
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Low to 6/30 7.49% 25.36% 7.16%
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1/1 to 6/30 -0.42% -2.46% -8.45%
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To illustrate the results in the sub-periods summarized in the chart, the
S&P 500 returned 4.25% through its high on March 24 and the NASDAQ returned a
remarkable 24.10% through March 10.
What is remarkable, however, is that on March 10 the NASDAQ achieved its
high of 5,049 and by May 23, had declined by 37.30% (during the week ending
April 14th alone, the NASDAQ had declined by 25.30%). This 37% decrease
represented a correction by any standard--thus, a hard landing. The S&P 500,
-11.14%, and the DJIA(3), -16.23%, were also very weak during this period.
From their respective lows (April 14 for the S&P 500 and on May 23 for
NASDAQ), through the end of the second quarter, the markets recovered strongly:
the S&P 500 returned 7.49%, and the NASDAQ returned a very strong 25.36%. The
DJIA also recovered well, +7.16%, from its low.
Focus back on the stock market as of March 10--the economy was very
strong, the Fed had tightened five times by a total of 1.25%, and the tightening
was perceived to be far from over. The broad stock market, as measured by the
S&P 500, and more so the NASDAQ, was "pricey" by any standards. With all of
these considerations, would a stock market correction at this time have been
surprising? Certainly not, and perhaps it was even inevitable. In fact, a stock
market correction could have happened earlier. That is the problem with trying
to time the market.
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(1) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity.
(2) The NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ National Market stocks.
(3) The Dow Jones Industrial Average (DJIA) is an unmanaged index of 30
industrial stocks listed on the New York Stock Exchange that is generally
considered to be representative of U.S. stock market activity.
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In retrospect, sanity may have hit the Internet sector late in the first
quarter of 2000. Internet company layoffs received more press coverage than
IPOs. The Superbowl on January 30 may have been the best leading indicator of
the correction in internet stocks. No, not the actual game, but the plethora of
very expensive advertising by previously unheard of internet companies (some of
which have not been heard from since).
How have the individual components of the stock market performed during
the second quarter of this year? During 1998 and 1999 and even during the first
quarter of 2000, the stock market investment themes were simple. Buy big stocks
(large capitalization); buy growth stocks; and buy technology stocks. During
this year's second quarter, however, these themes became ineffectual. Rather,
during this time:
o Mid cap stocks outperformed both large cap and small cap stocks;
o Value mutual funds outperformed growth funds in all the
capitalization categories;
o Health care and REIT (Real Estate Investment Trust) stocks were the
strongest performing sectors, outperforming technology and
industrial stocks;
o The DJIA, composed primarily of large cap cyclical industrials,
significantly underperformed; and
o Bond funds performed well relative to stock funds.
Does this seem like a confused stock market? It does to the author. More
on this below:
Overall during the first half of 2000, the S&P 500 broke just about even,
-0.42%, and the NASDAQ was slightly negative, -2.46%. In retrospect, this
outcome does not seem too meager during a period of several Fed tightenings with
very high valuations at the beginning. As a frame of reference, during the last
year of multiple Fed tightenings, which was in 1994, the S&P 500 returned 1.31%
and the NASDAQ -3.20%. However, during 1995 (the last tightening occurring on
February 1, 1995), the S&P 500 returned 37.43% and the NASDAQ 40.99%.
The S&P 500 is flat to slightly down for 2000 after losing 11.10% from its
high to its low. The NASDAQ experienced a hard landing, a decline of 37.30% from
its high on March 10 to its low on May 23. During the second quarter, checking
accounts were a good investment. Thus, those watching for a stock market
correction should be looking in the rear view mirror.
There are reasons to believe the stock market correction is basically
over, and that while the market is not likely to return to "exuberance," there
will be moderate returns during the second half of 2000. First, the economy has
slowed, and another soft landing may have begun. This softening will be
supported by the consumer wealth effect resulting from the weakness of the stock
market during the second quarter of 2000. In this case, the Fed tightening
period is almost complete.
With the worst for the stock market likely over and corporate profits
likely to be moderately strong for the rest of the year, the last half of 2000
should show modest returns although perhaps not up to the standards of the last
five years. With respect to the technology sector, there will be a moderate
performance although the NASDAQ is unlikely to achieve its March 10 high (5,049)
by year-end. With respect to picking sectors, market capitalization and style,
it will be a good period for diversification.
While the overall market appears confused, as indicated above, individual
investors should not be. I submit that no investor, no matter how expert, could
have predicted the actual results for the first half of 2000. The appropriate
investment strategy, thus, is to maintain a stable (although not constant),
diversified, moderate risk portfolio. The results for the first half of 2000
show that a diversified portfolio of Guardian funds would have been a strong
strategy during that period.
Regards,
/s/ Frank J. Jones, Ph.D.
Frank J. Jones, Ph.D.
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5
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The Guardian Stock Fund
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[Photo of Larry Luxenberg, C.F.A., Co-Portfolio Manager]
[Photo of John B. Murphy, C.F.A., Co-Portfolio Manager]
[Photo of Mark Dunetz, Co-Portfolio Manager]
Objective: Long-term growth of capital
Portfolio: At least 80% common stocks and securities convertible into common
stocks
Inception: April 13, 1983
Net Assets at June 30, 2000: $4,114,644,955
Q. How has the Fund performed during the first half of 2000?
A. By any standard, this has been a tumultuous year for the stock market. After
the first two weeks of January, veteran stock market analysts were already
asserting that this was one of the most volatile periods in stock market
history. The rest of the first half has done nothing to change this view. Given
such volatility, any tally of performance can quickly change. Nonetheless, over
the six months ended June 30, 2000, The Guardian Stock Fund was up 3.30%(1)
while the S&P 500 Index(2) was down 0.42%.
Q. What was your investment strategy during this time?
A. The volatility of the first half of the year strengthened our beliefs in
three things. First, it is important to take a long-term outlook. Second, timing
the market is exceedingly difficult. Third, investing in good companies
eventually pays off.
In a fickle market, it's easy to get caught up in the almost daily mood
swings and give up too quickly on sound investment ideas. Moreover, many studies
have shown that missing just a few days during strong market rallies greatly
diminishes long-term returns. To cite just two examples: a study by Sanford
Bernstein & Co. showed that if an investor was out of the market for the ten
best days from 1980 to 1994, he missed more than one-quarter of the total S&P
500 returns. If he missed only forty days (fewer than three per year) during
that period, he lost nearly two-thirds of total returns. In a more recent
example, April was the third worst month in the entire history of the NASDAQ
Composite Index(3) while June was the third best month.
Our portfolio continues to emphasize large-cap growth stocks, although
over the last year, we have added to our weightings in mid- and small-cap
stocks. We plan
================================================================================
The volatility of the first half of the year strengthened our beliefs in three
things. First, it is important to take a long-term outlook. Second, timing the
market is exceedingly difficult. Third, investing in good companies pays off
eventually.
================================================================================
to continue adding selected small- and mid-cap companies with promising
fundamentals.
Q. What is your outlook for the second half of 2000?
A. Despite the market's first-half gyrations, we believe that the outlook for
stocks is still positive. Most importantly, the domestic and global economies
remain sound. At year-end, central banks eased monetary conditions to
accommodate concerns about Y2K disruptions. This interrupted a period of global
tightening and may have contributed to an unusually strong first quarter.
Concerns about the economy overheating and rising inflation have been put to
rest, at least temporarily. Now, with the central banks relegated to the
sidelines and growth still solid but slowing, it looks promising for stocks. As
recent actions show, policy errors have not been banished from Washington, but
with only one short recession in eighteen years, somebody is doing something
right.
Meanwhile, technological change around the globe is,
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(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment for the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund.
(3) The NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ National Market stocks.
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6
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if anything, accelerating. Mobile communications, both voice and data, are
proliferating. Internet traffic is doubling every quarter. The completion of the
mapping of the human genome is characteristic of great strides being made in the
life sciences. Corporations, freed from the drag of Y2K spending, can now update
their internal systems and plenty of innovative software and hardware is
available. Companies such as Cisco and Microsoft have converted most of their
internal systems to digital ones and realized tremendous efficiences as well as
greatly improved access to timely information.
While the short-term outlook is always difficult to gauge, the long-term
view still looks good. In our view, it would be premature to sound the death
knell for the longest-running bull market of our lifetimes.
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The Guardian Stock Fund Profile
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Top Ten Holdings as of June 30, 2000
Percentage of
Company Total Net Assets
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1. Microsoft Corp. 4.10%
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2. Intel Corp. 3.91%
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3. Cisco Systems, Inc. 3.61%
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4. General Electric Co. 3.57%
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5. Citigroup, Inc. 2.83%
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6. Nortel Networks Corp. 2.68%
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7. Oracle Corp. 2.20%
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8. EMC Corp. 2.18%
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9. Int'l Business Machines 2.12%
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10. Xilinx 1.48%
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AVERAGE ANNUAL TOTAL RETURNS(1) FOR PERIODS ENDED JUNE 30, 2000
Since
1 Year 5 Years 10 Years Inception
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The Guardian Stock Fund 24.95% 25.54% 20.54% 18.42%
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S&P 500 7.24% 23.78% 17.75% 13.55%
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(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
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7
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Sector Weightings of Common Stocks
as of June 30, 2000
[The following table was depicted as a pie chart in the printed material.]
Utilities -- 0.22%
Consumer Cyclical -- 2.50%
Consumer Services -- 3.32%
Capital Goods -- 4.97%
Technology -- 45.28%
Consumer Staples -- 5.63%
Energy -- 7.51%
Finance -- 9.98%
Cash -- 2.36%
Telecommunications -- 18.23%
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Growth of a Hypothetical $10,000 Investment
[The following table was depicted as a line graph in the printed material.]
[Plot points to come]
The Guardian Stock Fund S&P 500 Index Cost of Living
4/13/83
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
12/31/99 $183,486 $156,149 $17,508
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A hypothetical $10,000 investment made at the inception of The Guardian Stock
Fund on April 13, 1983 would have grown to $183,486 on June 30, 2000. We compare
our performance to that of the S&P 500 Index, which is an unmanaged index that
is generally considered the performance benchmark of the U.S. stock market.
While you cannot invest directly in the S&P 500 Index, a similar hypothetical
investment would now be worth $156,149. The Cost of Living, as Emeasured by the
Consumer Price Index, which is generally representative of the level of U.S.
inflation, is also provided to lend a more complete understanding of the
investment's real worth.
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The Guardian VC 500 Index Fund
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[Photo of Jonathan C. Jankus, C.F.A., Portfolio Manager]
Objective: Seeks to match the investment performance of the Standard & Poor's
500 Corporate Stock Price Index ("the S&P 500 Index")
Portfolio: Common stocks of companies in the S&P 500 Index, which emphasizes
large U.S. companies
Inception: August 25, 1999
Net Assets as of June 30, 2000: $316,860,824
Q. How has the Fund performed during the first six months of 2000?
A. This has been an unimpressive year for the financial markets. In the first
half of this year, the total return on stocks, as measured by the S&P 500
Index,(1) was -0.42 %. The Fund's return over the period was -0.47%,(2) a nearly
identical result.
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"As passive investors, we do not attempt to engage in either market timing or
active security selection decisions. Our only goal is to match the returns of
the broad equity market in the most efficient way."
================================================================================
Q. What strategies were used by the Fund and how did they affect performance?
A. As an index fund, the Fund's goal is to mimic the returns of the S&P 500
Index portfolio. We attempt to do so by holding nearly all 500 of the stocks in
the index in approximately the same weights as they are represented in the
Index. We attempt to minimize trading costs and trade only when rebalancings are
required by capitalization changes in the Index or when dividends need to be
reinvested.
Q. What are your expectations for the future and how are you positioning the
Fund to take advantage of those expectations?
A. As passive investors, we do not attempt to engage in either market timing or
active security selection decisions. Our only goal is to match the returns of
the broad equity market (as measured by the S&P 500 Index) in the most efficient
way.
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(1) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 is not available for direct investment and its
returns do not reflect the expenses that have been deducted from the
Fund's return.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost.
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10
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The Guardian VC 500 Index Fund Profile
--------------------------------------
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TOTAL RETURN
FOR PERIODS ENDED JUNE 30, 2000
================================================================================
Inception Date ......................................................... 8/25/99
Since Inception ........................................................ 10.43%
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Top Ten Holdings as of June 30, 2000
Percent of
Total
Company Net Assets
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1. General Electric Co. 4.21%
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2. Intel Corp. 3.63%
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3. Cisco Systems, Inc. 3.51%
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4. Microsoft Corp. 3.35%
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5. Pfizer, Inc. 2.37%
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6. Exxon Mobil Corp. 2.15%
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7. Wal-Mart Stores, Inc. 2.09%
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8. Oracle Corp. 1.88%
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9. Citigroup, Inc. 1.61%
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10. Int'l Business Machines 1.57%
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Sector Weighting Comparisons
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Sector Weightings for The Guardian Sector Weightings for the S&P 500 Index
VC 500 Index Fund as of June 30, 2000 as of June 30, 2000
[The following were represented as pie charts in the printed material.]
Telecomunications-- 6.25% Telecomunications-- 6.56%
Commercial Services-- 2.25% Commercial Services-- 2.27%
Financial Services-- 14.25% Financial Services-- 14.47%
Basic Materials-- 3.84% Basic Materials-- 3.73%
Energy -- 5.70% Energy -- 5.46%
Technology -- 33.26% Technology -- 33.57%
Consumer Non-Cyclical-- 6.47% Consumer Non-Cyclical-- 6.29%
Consumer Cyclicals-- 6.52% Consumer Cyclicals-- 6.38%
Consumer Services-- 4.85% Consumer Services-- 4.78%
Industrials -- 2.98% Industrials -- 2.97%
Utilities -- 1.73% Utilities -- 1.66%
Transportation-- 0.53% Transportation-- 0.55%
Health Care -- 11.37% Health Care-- 11.31%
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11
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The Guardian VC Asset Allocation Fund
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[Photo of Jonathan C. Jankus, C.F.A., Portfolio Manager]
Objective: Long-term total investment return consistent with moderate investment
risk
Portfolio: A mixture of equity securities, debt obligations and money market
instruments; purchases shares of The Guardian Stock Fund, The Guardian Bond Fund
and The Guardian Cash Fund
Inception: September 15, 1999 Net Assets as of July 30, 2000: $33,148,753
Q. This has been an unimpressive year for the financial markets. How has the
Fund performed?
A. In the first half of this year, the total return on stocks, as measured by
the S&P 500 Index,(1) was -0.42% and the total return on bonds, as measured by
the Lehman Aggregate Bond Index,(2) was 3.99%. Our theoretical benchmark, a
portfolio created to hold 60% of its value in the S&P 500 and 40% in the Lehman
Aggregate would have returned 1.45%. The Fund's return over the period was
4.49%.(3)
Our good results relative to our benchmark were also reflected in our
performance relative to our peers. We outperformed the median return of 0.48%
produced by Morningstar's(5) universe of asset allocation funds.
Q. What strategies were used by the Fund and how did they affect performance?
A. The Fund is managed using proprietary quantitative models that attempt to
judge the relative risk-adjusted attractiveness of the stock, bond and cash
markets. While interest rates are the operative variables in the fixed income
markets, corporate profitability and growth are added to the mix for the equity
markets.
In general, a rising interest rate environment and a healthy but slowing
economy led us to reduce our equity exposure relative to cash and bonds.
Specifically, our stock/bond/cash mix at year-end was 20/45/35 and has remained
in that area. These weightings should be compared to the completely neutral
60/40/0 mix that we would expect to own when the markets were all fairly valued
relative to one another.
Our performance was positively affected by both our asset allocation
(which, since year-end has proved to be
================================================================================
Our performance was positively affected by both our asset allocation and the
fact that the stocks that we have owned have outperformed the S&P 500.
================================================================================
appropriately conservative) and the fact that the stocks that we have owned have
outperformed the S&P 500 (for further information on this aspect of Fund
performance, please see the section devoted to The Guardian Stock Fund.)
Q. What are your expectations for the future and how are you positioning the
Fund to take advantage of those expectations?
A. We continue to be very conservatively positioned, and we will maintain this
stance until either interest rates decline sufficiently or corporate
profitability rebounds in spite of a slowing economy. Neither of these events
seems very likely over the near term.
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(1) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect expenses that have been deducted from the Fund.
(2) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The Lehman
Aggregate Bond Index is not available for direct investment, and the
returns do not reflect expenses that have been deducted from the Fund.
(3) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment for the Fund
will be lower to reflect separate account and contract policy changes.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(4) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses.
(5) Morningstar, Inc. is an independent mutual fund monitoring and rating
service, and its database of performance information is based on
historical total returns, which assumes the reinvestment of dividends and
distributions, and the deduction of all fund expenses.
--------------------------------------------------------------------------------
12
<PAGE>
--------------------------------------------------------------------------------
The Guardian VC Asset Allocation Fund Profile
---------------------------------------------
--------------------------------------------------------------------------------
TOTAL RETURN(3)
FOR PERIODS ENDED JUNE 30, 2000
================================================================================
Inception Date ........................................................ 9/15/99
Since Inception ....................................................... 16.41%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Portfolio Composition by Asset Class
as of June 30, 2000
[The following was represented by a pie chart]
Common Stocks -- 20%
Cash -- 35%
Fixed Income -- 45%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
13
<PAGE>
--------------------------------------------------------------------------------
The Guardian Bond Fund
----------------------
[Photo of Thomas G. Sorell, C.F.A., Co-Portfolio Manager]
[Photo of Howard W. Chin, Co-Portfolio Manager]
Q. How did the Fund perform during the first half of 2000?
A. The Fund had a total return of 3.51%(1) for the six months ended June 30,
2000, outperforming the average fund in our Lipper Intermediate Investment Grade
peer group,(2) which returned 3.19% for the same period. The group consists of
variable annuity sub-accounts that invest primarily in investment grade debt
with average maturities of 5-10 years. Another commonly used benchmark, the
Lehman Aggregate Bond Index,(3) returned 3.99% for the first half of 2000.
Q. What factors affected the Fund's performance?
A. During the first half of 2000, the Federal Reserve remained concerned that
rapid U.S. economic growth would result in increased inflationary pressures
given tight labor markets and other capacity constraints. Consequently, the
Federal Reserve Open Market Committee followed last year's round of tightening,
initiated in June 1999, with three additional moves in February, March, and May,
further increasing the Fed Funds rate by a total of 1.0% to 6.5%. As a result,
interest rates rose early in the first quarter with the 5-, 10-, and 30-year
Treasury rates all peaking near 6.75% and then declining steadily in March as
the Treasury announced new projections of large Federal surpluses and its intent
to start retiring government debt.
In addition, turbulence in the equity markets in March and April lent
support to the Treasury market as investors sought a safe haven from equity
volatility. By mid-April, 10- and 30-year Treasury rates had declined by
approximately 1.0% to 5.75%. However, as deteriorating inflation statistics were
reported, interest rates rose again, approaching first quarter highs of 6.75% in
mid-May and then proceeded to decline when evidence appeared that the Federal
Reserve's efforts to slow the economy might be succeeding.
The first half of 2000 came to a close with long-term interest rates
approximately 0.40% to 0.60% lower than they were when the year began, while
shorter maturities were little changed. This phenomenon, referred to as a yield
curve inversion, where long-term rates yield less than short-term rates, was in
part responsible for the poor performance of non-Treasury securities (spread
assets) in the fixed income markets during the first half of 2000.
Once again we find ourselves recounting the disparate performance between
Treasury securities and the other fixed income asset classes, corporate,
mortgage-backed, and asset-backed securities. The market for spread assets in
many respects resembled the fall of 1998 and performed as poorly, but without a
visible financial crisis like the Russian default or the collapse of a
well-known hedge fund. While the Lehman Aggregate Bond Index returned 3.99%
during the first six months of 2000, the Treasury component of this index earned
5.37%. These
================================================================================
"The net result of these events was that on a nominal basis the investment grade
fixed income asset class outperformed most equity indices during the first half
of the year . . ."
================================================================================
returns far exceeded what was earned by similar duration spread assets. By many
measures, corporate bonds in the first half of 2000 not only performed more
poorly than in 1998 but also actually approached levels not seen since the
recession of 1990. The Lehman Corporate Bond Index(4) underperformed Treasuries
for the first five months of the year by 3.30%, and not until June did corporate
bonds provide a return advantage over similar duration Treasuries. Still,
overall, the Lehman Corporate Bond Index returned approximately 2.70% less than
similar duration Treasuries.
This abysmal performance of corporate bonds was due to a combination of
factors. The first and most obvious factor was the fear that the Federal
Reserve, intent on slowing economic growth, would not succeed in orchestrating a
"soft landing" but would instead push the econ-
--------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment for the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses.
(3) The Lehman Aggregate Bond Index is an unmanaged index that is generally
considered to be representative of U.S. bond market activity. The Lehman
Aggregate Bond Index is not available for direct investment and the
returns do not reflect the fees and expenses that have been deducted from
the Fund.
(4) The Lehman Corporate Bond Index is an unmanaged index that is generally
considered to be representative of corporate bond market activity. The
Index is not available for direct investment and the returns do not
reflect the fees and expenses that have been deducted from the Fund.
--------------------------------------------------------------------------------
14
<PAGE>
--------------------------------------------------------------------------------
omy into recession or a "hard landing." A second factor was the increasing
dichotomy in the equity market with respect to valuations between "old" and
"new" economy credits. A majority of the corporate bond market is comprised of
traditional "Blue Chip" companies that were experiencing weak stock prices.
These companies came under increasing pressure to repurchase stock at the
expense of overall creditworthiness. This, in conjunction with increased fears
of "event risk," such as leveraged buyouts for these undervalued companies, led
to heightened credit risk. A third factor discussed earlier was the inversion of
the Treasury curve, which caused further widening of long corporate spreads.
Much like the experience of the corporate sector, securitized products
(mortgage-backed [MBS], asset-backed [ABS], and commercial mortgage-backed
securities [CMBS]) suffered through five months of anemic performance only to
regain some ground in June as market participants became more confident that the
Fed may be nearing the end of its tightening efforts. For the first half of
2000, the Lehman MBS, ABS and CMBS indices showed positive returns of 3.67%,
3.35% and 3.66% respectively. On the surface, the spread sectors appeared to
perform reasonably in line with the overall Lehman Aggregate Index, but when
their returns are compared relative to similar-duration Treasuries, their weak
showings become apparent. Specifically, the MBS, ABS and CMBS sectors
underperformed by -0.51%,-0.26%, and -1.22%, respectively.
The weakness of the securitized products sector in the first half can be
attributed to two primary factors: the inversion of the yield curve and the
potential for increased regulatory scrutiny of the housing agencies that issue
MBS. Since MBS cashflows are spread out all along the curve, they were
particularly vulnerable to the effects of a reshaping of the yield curve.
Futhermore, as the Treasury buyback program increased concerns over the
impending prospects of illiquidity in Treasuries, investors became increasingly
doubtful about the validity of using the Treasury curve as the primary benchmark
of value and analytical framework for determining relative value. As a result,
investors came to expect some premium as compensation for these increased risks.
On the regulatory front, the debentures and MBS issued by the housing
agencies, Fannie Mae and Freddie Mac, came under intense pressure as both
Treasury officials, and members of Congress emphasized that the Agency issues
did not have the full-faith-and-credit guarantee of the U.S. government, and
indicated the likelihood of greater scrutiny and regulation. As a result of all
the uncertainty, yield spreads on both agency debt and MBS widened sharply.
The net result of these events was that on a nominal basis the investment
grade fixed income asset class outperformed most equity indices during the first
half of the year, and did so without the full benefit of the traditional "yield"
advantage it enjoys.
Q. What was your investment strategy during this period?
A. The Fund employed a very defensive credit strategy throughout the first half
of the year. Concerned about increasing credit risk in a Fed tightening
environment, the portfolio reduced its exposure to 30-year corporate bonds and
increased its exposure to the triple-A rated mortgage-backed sector. Corporate
credit risk was limited to shorter maturities with more attractive risk/return
profiles. The Fund also tended to favor a combination of very short and long
duration securities and underweight the intermediate part of the yield curve. As
the yield curve inverted, this strategy proved to be successful. While the
mortgage-backed sector outperformed corporate bonds, it still underperformed
Treasuries; therefore, while the Fund performed well, the overweight in high
quality spread assets still reduced the Fund's overall return.
Q. What is your outlook for the remainder of the year?
A. It now appears that the Federal Reserve is succeeding in starting to slow the
economy and that it may be near the end of the monetary tightening process.
However, the risk remains that after the economy slows, inflation trends will
require several additional Fed moves which could push the economy into
recession. Although this risk seems small and unlikely, it is nonetheless one
that would adversely affect the spread asset classes and therefore must be
watched. If in fact the Federal Reserve is almost done raising interest rates,
we would expect spread assets to once again outperform Treasuries, and fixed
income to generally perform well. As the year progresses, our strategy will
continue to focus on monitoring and balancing these risks by actively adjusting
our asset allocation to reflect changes in sector valuations and continuing to
identify attractive investment opportunities within these sectors.
--------------------------------------------------------------------------------
The Guardian Bond Fund Profile
as of June 30, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 2000
================================================================================
1 Year ............................................................. 4.10%
5 Years ............................................................ 5.67%
10 Years ........................................................... 7.35%
Since Inception (5/1/83) ........................................... 8.35%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
15
<PAGE>
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund
--------------------------
[Photo of Mario J. Gabelli, C.F.A., Portfolio Manager]
Objective: Growth of capital. Current income is a secondary objective
Portfolio: Primarily common and preferred stocks and other securities
representing the right to acquire common stocks
Inception: May 1, 1995
Net Assets at June 30, 2000: $164,432,720
Q: How did the Fund perform for the first six months of 2000?
A: For the six months ended June 30, 2000, the Gabelli Capital Asset Fund's (the
"Fund") total return was 3.15%.(1) The Standard & Poor's 500 Index(2) ("S&P
500") and Russell 2000 Index(3) had returns of -0.42% and 3.04%, respectively,
over the same period. Each index is an unmanaged indicator of stock market
performance.
For the five-year period ended June 30, 2000, the Fund's total return
averaged 18.35% annually, versus average annual total returns of 23.80% and
14.27% for the S&P 500 and Russell 2000 Indices, respectively.
Q: What factors affected the Fund's performance for the first six months of
2000?
A: At the end of the first quarter of 2000, long-dormant value stocks were
finally attracting attention. The sharp technology stock correction, which began
in the second week of March, revived the antiquated notion that the severely
depressed stocks of high quality companies in out-of-favor industry groups might
be an attractive alternative to the richly priced growth stocks. This
all-but-forgotten concept gained credence as technology stocks continued to
plummet in April. However, investors quickly lost interest in the merits of
value investing when technology stocks began rebounding in late May. By the end
of the second quarter, all eyes were once again focused on technology stocks,
leaving the rest of the market adrift. The Dow Jones Industrial Average(4)
("DJIA") and Standard & Poor's 500 Index materially outperformed the NASDAQ
Composite Index(5) during the second quarter, but momentum had clearly shifted
back to technology stocks at its close.
It has been a dull market for everything but technology stocks these past
six months. After a breathtaking nosedive that temporarily frightened investors
into more reasonably priced market sectors, technology stocks are once again
soaring as the first half of the year draws to a close and attracting almost all
of investors' attention and resources. The rest of the market remains
earthbound.
Our health care industry investments performed well, and food stocks,
which we highlighted as appetizing values in a previous report, also nourished
returns. Meanwhile, after a long run of superior performance, stocks in the
telecommunications and media sectors had become somewhat extended and were due
for a breather. We believe they are still long-term bargains and expect both
earnings growth trends and ongoing consolidation to help them regain momentum.
The Interactive Age is still in its infancy. Going forward, quality distribution
(wired and wireless telecommunications systems, cable television and broadcast
networks) and information and
================================================================================
"The takeover of companies within the portfolio, announced plans for the
potential sale of others, and investors' focus on other potential industry group
targets helped propel the Fund to a modest outperformance of the market
averages."
================================================================================
entertainment content (publishers and film and television production companies)
will be among the world's most prized assets.
Value honey is attracting bees. The takeover of companies within the
portfolio, announced plans for the
--------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies which provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of an investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund.
(3) The Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The Russell 2000
Index is not available for direct investment, and its returns do not
reflect expenses that are deducted from the Fund.
(4) The Dow Jones Industrial Average (DJIA) is an unmanaged index of 30
industrial stocks listed on the New York Stock Exchange that is generally
considered to be representative of U.S. stock market activity.
(5) The NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ National Market stocks. The Index is not available for
direct investment.
--------------------------------------------------------------------------------
16
<PAGE>
--------------------------------------------------------------------------------
potential sale of others, and investors' focus on other potential industry group
targets helped propel the Fund to a modest outperformance of the market
averages. We believe merger and acquisition activity will continue to provide a
performance tailwind for the Fund even in what may continue to be a lackluster
market for value stocks.
Q: What is your outlook for the remainder of the year?
A: The labor market remains tight, and the threat of wage-driven inflation is
quite real. Despite six Federal Reserve interest rate hikes over the last
eighteen months, the economy is still growing at a pace that troubles the
monetary authorities and may lead to even higher short- and long-term interest
rates. Although we would assign it a low probability, there is the danger that
the Federal Reserve will overplay its hand and send the economy into a tailspin.
This is also an election year. While the campaign has been a relatively quiet
one, the rhetoric is sure to heat up as we approach November. Political
posturing on economic issues, principally how to squander the growing budget
surplus, may rattle the financial markets. Finally, while there are large
pockets of very attractive fundamental values in the equity markets, stocks are
still rather richly priced relative to historic norms.
Of less widespread concern is the soaring balance of the trade deficit.
Thus far, the world has been happy to finance this deficit by buying U.S. stocks
and bonds. This has worked out well for all concerned. However, if we see
inflation continue to trend higher and the U.S. financial markets continue to
sputter, international investors may seek opportunities elsewhere. Reduced
global demand for U.S. financial assets may have a greater impact on stocks and
bonds than the aforementioned economic, political, and market issues. All
investment esoterics aside, stocks and bonds go up when the buyers are more
motivated than the sellers. If the international demand dries up, the very
favorable supply/demand dynamics that the U.S. financial markets have enjoyed
over the last decade may be disrupted.
That is the dark side. The bright side is that we are finally seeing
evidence of economic deceleration. Housing starts and home sales are down
substantially, and with the exception of oil, commodity prices have stabilized.
The most recently released employment numbers were relatively benign, and there
are indications that consumer confidence has been dented. For the time being,
the Federal Reserve has spared us an additional rate hike. We just may be
returning to a "Goldilocks" economy--not too hot, not too cool, but just
right--that will help propel stocks higher. Ideally, we will see a much broader
market advance in which quality companies in a wider range of industries
participate.
Cyclical stocks have received little tribute for better than expected
earnings. In fact, we believe that significantly lower earnings are already
baked into valuations. So, any pleasant surprises should generate enthusiasm.
Other industry groups such as food and drug stocks have suffered more from
investor indifference than any present or potential earnings dislocations. These
industry groups are logical depositories of money that may flow out of tech
stocks. Media stocks, which stalled in 2000 after exceptionally strong
performance in 1998-99, may also regain some momentum as consolidation in the
industry accelerates. In the last year, we have seen AOL combine with Time
Warner, Viacom acquire CBS, and the recently announced Vivendi, Canal Plus,
Seagram merger. We think there are many more deals, big and small, on the
horizon as content and distribution are linked to improve media companies'
competitive positions on the world stage. Telecommunications stocks have also
taken a well-deserved rest this year. However, the three forces driving the
industry--technology, deregulation, and consolidation--remain firmly in place.
--------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 2000
--------------------------------------------------------------------------------
1. Telephone & Data Systems, Inc. 3.88%
--------------------------------------------------------------------------------
2. Liberty Media Group, CL. A 3.82%
--------------------------------------------------------------------------------
3. Viacom Inc., CL. A 3.60%
--------------------------------------------------------------------------------
4. Cablevision Systems Corp., CL. A 2.79%
--------------------------------------------------------------------------------
5. Chris-Craft Industries Inc. 2.68%
--------------------------------------------------------------------------------
6. Citizens Communications Co. 2.40%
--------------------------------------------------------------------------------
7. Media General Inc., CL. A 2.35%
--------------------------------------------------------------------------------
8. Shared Medical Systems Corp. 1.85%
--------------------------------------------------------------------------------
9. Carter-Wallace Inc. 1.83%
--------------------------------------------------------------------------------
10. El Paso Electric Co. 1.83%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund Profile
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIOD ENDED JUNE 30, 2000
================================================================================
1 Year ............................................................... 8.63%
3 Years .............................................................. 17.51%
5 Years .............................................................. 18.35%
Since Inception (5/1/95) ............................................. 18.13%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
17
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford International Fund
----------------------------------
[Photo of R. Robin Menzies, Portfolio Manager]
Objective: Long-term capital appreciation
Portfolio: At least 80% in a diversified portfolio of common stocks of companies
domiciled outside of the United States
Inception: February 8, 1991
Net Assets at June 30, 2000: $831,418,254
Q. How did the Fund perform for the first six months of 2000?
A. The Fund had a return of -8.10%(1) in the six months ending June 30, 2000.
This compares with the total return of -3.95% for the Morgan Stanley Capital
International (MSCI) Europe, Australia, and Far East (EAFE) Index.(2)
International markets were weak during the period, except those within
Continental Europe. The MSCI UK Index had a total return of -11.72%, the MSCI
Pacific ex-Japan Index returned -9.11%, and the MSCI Japan Index returned
-5.32%, while MSCI Europe ex-UK Index was up by only 0.56%. Part of the weakness
in this region was attributable to currency factors. The total return of the
MSCI Europe ex-UK Index was a positive 4.69% in local currency terms, but the
region's currencies, predominantly the Euro, were weak against the Dollar.(3)
Q. What factors affected the Fund's performance?
A. The main reason that the Fund's performance was behind that of the MSCI EAFE
Index was that some of the stocks the Fund held in Japan and in the telephone
services industries around the world performed poorly. This is in contrast to
those stocks' 1999 performance. In addition, the Fund had a greater amount
invested in the relatively weak Pacific ex-Japan region than in the EAFE Index.
During the course of the period, it became apparent that economic growth
in Continental Europe was accelerating, particularly in the core countries of
France and Germany. This acceleration was assisted by the continuing strength of
the Dollar (or weakness of the Euro), which improved the competitive position of
European exporting companies. While Japan showed very strong growth in its Gross
Domestic Product in the first quarter, there are lingering doubts about the
strength and coherence of its economic and fiscal policies. In contrast,
economic activity in many other Asian economies was strong, helped by burgeoning
growth in exports to the USA.
The changes in activity in the various international economies led to
changes in our evaluation of the prospects for the companies in the different
regions, and consequently, we decreased the Fund's exposure in Japan and
increased it in Europe.
Q. What is your outlook for the remainder of the year?
A. Our investment strategy continues to be one of identifying individually
attractive companies domiciled in developed markets outside North America. Our
analysts conduct disciplined research on the universe of stocks available for
investment, looking at the prospects of the industries in which the companies
operate, the companies' competitive positions, profitability, and manage-
================================================================================
The changes in activity in the various international economies led to changes in
our evaluation of the prospects for the companies in the different regions, and
consequently, we decreased the Fund's exposure in Japan and increased it in
Europe.
================================================================================
ment strategies. This involves many meetings and much travel from our offices in
Edinburgh.
Looking forward, we expect growth to remain strong in Europe and Asia
ex-Japan, but the latter area is particularly sensitive to developments in the
U.S. economy. We will continue to follow our strategy of investing in
fundamentally attractive businesses, wherever they are based internationally.
--------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment for the Fund
will be lower to reflect separate account and contract policy changes.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
(2) The Morgan Stanley Capital International (MSCI) Europe, Australia and Far
East (EAFE) Index is an unmanaged index that is generally considered to be
representative of international stock market activity. The MSCI EAFE Index
is not available for direct investment and the returns do not reflect the
fees and expenses that have been deducted from the Fund's return.
(3) The MSCI UK Index is an unmanaged index generally considered to be
representative of market activity in the United Kingdom. The MSCI Pacific
ex-Japan Index is an unmanaged index generally considered to be
representative of the stock market activity of Australia, Singapore, Hong
Kong, and New Zealand. The MSCI Japan Index is an unmanaged index
generally considered to be representative of Japanese stock market
activity. The MSCI Europe Ex-UK Index is an unmanaged index generally
considered to be representative of European stock market activity,
excluding the United Kingdom. The returns for these indices do not reflect
expenses that are deducted from the Fund's return.
--------------------------------------------------------------------------------
18
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford International Fund Profile
------------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 2000
================================================================================
1 Year ................................................................. 23.37%
3 Years ................................................................ 14.82%
5 Years ................................................................ 17.24%
Since Inception (2/8/91) ............................................... 14.07%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Portfolio Composition by Geographical
Location as of June 30, 2000
[The following was represented by a pie chart in the printed material.]
Cash -- 0.46%
Pacific ex-Japan -- 8.27%
Japan -- 21.84%
Europe ex-UK -- 49.94%
UK -- 19.49%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 2000
Percent of
Total Net
Company Assets Industry Sector Country
--------------------------------------------------------------------------------
1. Nokia OYJ 4.55% Telecommunications Finland
--------------------------------------------------------------------------------
2. LM Ericsson 3.67% Telecommunications Sweden
--------------------------------------------------------------------------------
3. Vodafone Airtouch PLC 3.35% Telecommunications U.K.
--------------------------------------------------------------------------------
4. Total Fina Elf S.A. 2.96% Oil and Gas Producing France
--------------------------------------------------------------------------------
5. Philips Electronics (KON) 2.43% Semi-conductors Netherlands
--------------------------------------------------------------------------------
6 Ver Ned Uitgeuers 2.26% Electronic Publishing Netherlands
--------------------------------------------------------------------------------
7. BPAmoco PLC 2.25% Oil-Integrated-International U.K.
--------------------------------------------------------------------------------
8. San Paolo IMI SPA 2.15% Financial Bank Italy
--------------------------------------------------------------------------------
9. NTT DoCoMo, Inc. 2.03% Telecommunications Japan
--------------------------------------------------------------------------------
10. Intershop Comm. 1.97% Business Services Germany
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
19
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
-------------------------------------
[Photo of Edward H. Hocknell, Portfolio Manager]
Objective: Long-term capital appreciation
Portfolio: At least 65% in a portfolio of common stocks issued by emerging
market companies
Inception: October 17, 1994
Net Assets at June 30, 2000: $88,339,237
Q. How did the Fund perform during the first half of 2000?
A. In the first half of 2000, the Morgan Stanley Capital International (MSCI)
Emerging Markets Free Index (EMF)(1) returned -5.00%, while Baillie Gifford
Emerging Markets Fund returned -4.48%(2) in U.S. Dollar terms.
Q. What factors affected the Fund's performance and what was your strategy?
A. The quarter has been marked by market volatility, as the correction in the
NASDAQ Composite(3) has had varying effects in emerging markets. No one region
performed significantly better or worse than the others during the period;
indeed in both the first and second quarters, their progress was remarkably
uniform. As it turned out, the decline in MSCI Latin America Free Index, at
5.1%, was less than the falls in the MSCI Asia Free Index and the MSCI Emerging
Europe Index(4) although the differences were marginal. Significant currency
moves, with one or two minor exceptions, were notable by their absence.
Not surprisingly, the Asian markets, which were the greatest beneficiaries
of growth in technology and the Internet, were the ones that displayed the most
nervousness. In Asia, we managed to sell many of our Internet-related holdings
before they suffered the worst of the sell-off, but most of our more solid
technology holdings also ran into heavy selling and some saw sharp falls in
price. Allied to these concerns over momentum and valuation was the prospect of
a sharp rise in U.S. interest rates, a hard landing there, and shrinking demand
for the goods supplied by emerging markets. More recently, as the signs of
overheating have abated, the markets have recovered some of their poise. Most
markets retraced their losses, but India remains almost 20% lower, with software
stocks well off their highs. There were also politically induced falls in
Indonesia and Thailand (where the Fund has limited exposure).
Latin American growth continues to improve after a difficult 1999. In
recent months, we have been encouraged by the steady stream of purchases of
Latin American businesses by multinationals. The multinationals are attracted by
the strong market positions and cash flow characteristics of many of these
companies. We, like the multinationals, think that corporate valuations are
relatively low in the region. This provides an encouraging environment for all
equity investors.
================================================================================
"The short term outlook for Emerging Markets is likely to be dictated by the
economic signals emanating from the U.S., as many countries' economies and many
companies' profits are currently direct beneficiaries of the strength of U.S.
growth."
================================================================================
In line with trends elsewhere, emerging European equities have been
trending downwards over the quarter, hit by weakness in technology, multimedia,
and telecom (TMT) stocks. Although the major eastern European countries tended
to fall in unison, Hungary and the Czech Republic continued to benefit from
strong export demand, improving external balances and controlled inflation. This
was in contrast with Poland, which is still suffering from a burgeoning current
account deficit, rising inflation and interest rates, and a deteriorating
politi-
--------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International (MSCI) Emerging Markets Free
(EMF) Index is an unmanaged index that is generally considered to be
representative of the stock market activity of emerging markets. The Index
is a market capitalization weighted index composed of companies
representative of the market structure of 22 emerging market countries in
Europe, Latin America, and the Pacific Basin. The MSCI EMF Index excludes
closed markets and those shares in otherwise free markets that may not be
purchased by foreigners. The MSCI EMF Index is not available for direct
investment, and the returns do not reflect the fees and expenses that have
been deducted from the Fund's return.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost.
(3) The NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ National Market stocks.
(4) The Morgan Stanley Capital International (MSCI) Latin America Free Index
is an unmanaged index that is generally considered to be representative of
the stock market activity ofLatin America. The Morgan Stanley Capital
International (MSCI) Asia Free Index is an unmanaged index that is
generally considered to be representative of the stock market activity of
Asia. The MSCILatin America Free and Asia Free Indices exclude closed
markets and those shares in otherwise free markets that may not be
purchased by foreigners. The Morgan Stanley Capital International
(MSCI)Emerging Europe Index is an unmanaged index that is generally
considered to be representative of the stock market activity of emerging
markets in Europe. The MSCILatin America Free, Asia Free and Emerging
Europe indices are not available for direct investment. and the returns do
not reflect the fees and expenses that have been deducted from the Fund's
return.
--------------------------------------------------------------------------------
20
<PAGE>
--------------------------------------------------------------------------------
cal situation, which has seen the disintegration of the government coalition.
One of the causes of the Fund's outperformance was its very heavy weighting in
these outperforming sectors in the first calendar quarter, and the timely
reduction of that overweight position before all the previous gains had been
wiped out. The country bets which added most value for the Fund were its extreme
underweight in Greece and its overweight in Turkey.
Q. What is your outlook for the future?
A. The short term outlook for emerging markets is likely to be dictated by the
economic signals emanating from the U.S., as many countries' economies and many
companies' profits are currently direct beneficiaries of the strength of U.S.
growth. A mild deceleration there, without sharp rises in interest rates, would
be the most benign scenario. Sectoral themes still seem to be dominant,
particularly in Asia, again following the lead of U.S. markets. A cooling of
activity in the U.S. is now a given, but the key will be the speed at which it
cools. There seems little doubt that a gentle deceleration would provide the
best backdrop for emerging markets investment. At the corporate level,
opportunities abound. It is becoming easier to find companies whose business
models and ethics come up to Western standards, and the recent price falls have
been providing chances to pick up bargains.
Important themes over the next six months may be the progress of China,
both in terms of its economic recovery and in terms of the introduction of more
new and significant companies to the stock market, and the depth of ongoing
reforms in Latin America.
--------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund Profile
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(2)
FOR PERIODS ENDED JUNE 30, 2000
================================================================================
1 Year ................................................................. 27.20%
3 Years ................................................................ 0.63%
5 Years ................................................................ 9.50%
Since Inception (10/17/94) ............................................. 5.28%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Portfolio Composition by Geographical
Location as of June 30, 2000
[The following was represented by a pie chart in the printed material.]
Pacific ex-Japan -- 49.82%
Europe -- 16.80%
Other -- 3.97%
Cash -- 4.02%
Latin America -- 25.39%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 2000
Percent of
Company Total Net Assets Industry Sector Country
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Samsung Electronics 6.63% Electronic Equipment South Korea
-------------------------------------------------------------------------------------------------------
2. Telefonos de Mexico S.A. ADR 2.68% Telecommunications Mexico
-------------------------------------------------------------------------------------------------------
3. China Mobile (HK) Ltd. 2.44% Telecommunications Hong Kong
-------------------------------------------------------------------------------------------------------
4. BATM Advanced Comm. Ltd. 2.12% Business Services Israel
-------------------------------------------------------------------------------------------------------
5. Taiwan Semiconductor 2.03% Electronic and Instruments Taiwan
-------------------------------------------------------------------------------------------------------
6. Infosys Technology Ltd. 2.02% Computer Software India
-------------------------------------------------------------------------------------------------------
7. Legend Hldgs. Ltd. 1.99% Computer Systems Hong Kong
-------------------------------------------------------------------------------------------------------
8. Technology Resources Inds. Berhad 1.93% Telecommunications Malaysia
-------------------------------------------------------------------------------------------------------
9. Korea Electric Power Corp ADR 1.90% Utilities - Electric South Korea
-------------------------------------------------------------------------------------------------------
10. China Unicom Ltd. 1.78% Telecommunications Hong Kong
-------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
21
<PAGE>
--------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
---------------------------------
[Photo of Catherine McRae, Portfolio Manager]
Objective: Long-term growth of capital
Portfolio: At least 85% in a diversified portfolio of common stocks and
convertible securities issued by companies with small market capitalization
Inception: July 16, 1997
Net Assets at June 30, 2000: $312,839,880
Q. How did The Guardian Small Cap Stock Fund perform during the first half of
2000?
A. June 30, 2000 marked the end of six tumultuous months. Performance was quite
mixed, with mid-caps leading the way, large-caps lagging, and small-caps
sandwiched in between. The S&P 500 Index(1) declined 0.42% for the six months,
while the S&P 400 Mid-Cap Index(2) achieved an 8.98% gain and the Russell
2000(3) advanced 3.04%. Technology, telecommunications, and biotechnology stocks
- which could do no wrong at the start of 2000 - could do nothing right between
April and June. Abrupt sentiment swings were compounded by unprecedented trading
volatility. Against this difficult backdrop, the Fund managed to outperform its
benchmark, the Russell 2000, by 866 basis points (8.66%), posting a total return
of 11.70%.(4)
Q. What was your investment strategy during this time?
A. Throughout the turbulence, we tried to stay focused. We entered the year
over-weighted in technology and telecom, positions that continued to grow as the
NASDAQ Composite(5) traded toward its 5000 peak in early March. During the
market's first attempt to rally after the mid-March correction, we trimmed these
holdings. We then re-deployed the cash in several sectors that had been
under-weighted. We raised our exposure to financials from 9% to 11% of assets by
adding to regional banks, thrifts, and asset managers. We increased our
healthcare weighting from approximately 5% to 11% by broadening our portfolio of
specialty drug companies, biotechs, and service providers. We also added
selected names in capital goods - quality companies with above-average long-term
growth records. We held our combined technology/telecom weighting to about 50%,
based on excellent near-term fundamentals and the belief that Fed interest rate
hikes would slow but not stop the economy. And we tried to upgrade our holdings
whenever possible. In our judgment, the portfolio was more broadly diversified
and solidly positioned entering July.
Q. What is your outlook for the second half of 2000?
A. We remain cautious but constructive about the second half of the year. If the
economic data released over the next month brings an end to Fed tightening, we
see positive implications for Gross Domestic Product growth and the stock market
overall. Other potential market catalysts could be the continuing global
economic recovery and upcoming U.S. presidential elections. In this environment,
we continue to favor technology, telecom, and healthcare stocks. We also believe
that the small cap uni-
================================================================================
"We also believe that the small cap universe will continue to provide new and
exciting ways to participate in the 'New Economy,' the worldwide build-out of
the communications infrastructure."
================================================================================
verse will continue to provide new and exciting ways to participate in the "New
Economy," the worldwide build-out of the communications infrastructure.
--------------------------------------------------------------------------------
(1) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment.
(2) The S&P 400 Mid Cap Index is an unmanaged index of 400 Middle
Capitalization U.S. stocks that is generally considered to be
representative of the returns of the midsize company segment of the U.S.
market. The S&P 400 Mid Cap Index is not available for direct investment.
(3) The Russell 2000 Index is generally considered to be representative of
small-capitalization issues in the U.S. stock market. The returns for the
Russell 2000 Index do not reflect expenses that are deducted from the
Fund's returns. Likewise, return figures for the Russell 2000 Index do not
reflect any sales charges that an investor may have to pay when purchasing
or redeeming shares of the Fund.
(4) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies which provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of an investment,
when redeemed, may be worth more or less than the original cost.
(5) The NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ National Market stocks.
--------------------------------------------------------------------------------
22
<PAGE>
--------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund Profile
-----------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(4)
FOR PERIODS ENDED JUNE 30, 2000
================================================================================
1 Year ................................................................. 51.26%
Since Inception (7/16/97) .............................................. 18.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Top Ten Holdings as of June 30, 2000
Percent of
Total
Company Net Assets
--------------------------------------------------------------------------------
1. Xilinx, Inc. 1.30%
--------------------------------------------------------------------------------
2. VeriSign, Inc. 1.29%
--------------------------------------------------------------------------------
3. Plexus Corp. 1.22%
--------------------------------------------------------------------------------
4. Network Appliance, Inc. 1.13%
--------------------------------------------------------------------------------
5. E Tek Dynamics, Inc. 1.03%
--------------------------------------------------------------------------------
6. Flextronics Int'l 1.01%
--------------------------------------------------------------------------------
7. Applied Micro Circuits Corp. 1.00%
--------------------------------------------------------------------------------
8. Exodus Comm., Inc. 0.99%
--------------------------------------------------------------------------------
9. Macromedia, Inc 0.92%
--------------------------------------------------------------------------------
10. B.J. Svcs. Co. 0.90%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Sector Weightings of Common Stocks
as of June 30, 2000
[The following was represented by a pie chart in the printed material.]
Utilities -- 1.42%
Basic Industries -- 1.80%
Credit Cyclicals -- 0.54%
Transportation -- 0.76%
Financials -- 9.64%
Telecommunications -- 19.74%
Technology -- 29.80%
Consumer Staples -- 10.13%
Consumer Services -- 6.45%
Energy -- 3.54%
Capital Goods -- 6.26%
Consumer Cyclicals -- 2.21%
Cash -- 7.71%
--------------------------------------------------------------------------------
23
<PAGE>
--------------------------------------------------------------------------------
Value Line Centurion Fund
-------------------------
[Photo of Stephen E. Grant, Senior Portfolio Manager; Philip J. Orlando, CFA,
Chief Investment Officer and Centurion Team Leader; and Alan N. Hoffman, CFA]
Objective: Long-term growth of capital
Portfolio: At least 90% common stocks
Inception: November 15, 1983
Net Assets at June 30, 2000: $918,312,127
Q. How did the Value Line Centurion Fund perform during the first half of 2000?
A. For the six months ended June 30, 2000, the Centurion Fund generated a total
return of 2.77%,(1) compared with negative total returns produced by the broad
equity market indices. The S&P 500 Index(2) was down 0.42%, the NASDAQ Composite
Index(3) declined 2.53%, and the Dow Jones Industrial Average(4) dropped by
8.49%.
Q. What factors affected the Fund's performance? What was your investment
strategy during this time period?
A. Centurion enjoyed an excellent first half of 2000, as the Fund was both fully
invested and had wide diversification among a number of market sectors,
including technology, telecommunications, pharmaceuticals, biotechnology,
retail, cyclicals, and financial-service stocks. Our disciplined, bottom-up
stock selection contributed significantly to our solid investment returns, as we
focused on companies offering the potential for well-above-average earnings
growth, combined with attractive relative valuation profiles.
Importantly, we positioned Centurion with many of the blue chip, large-cap
technology and telecommunications companies, which we believed were poised to
benefit from Herculean efforts both here and abroad to gain Y2K compliance.
However, we had correctly forecast that the dire, doomsday Y2K scenarios
-- which many investors had been spinning with regard to both the domestic and
global failure to successfully orchestrate the millennium calendar changeover --
were hugely overblown. As a result, we surmised that excessive inventory
stockpiles, which had been amassed as a precautionary buildup by both consumers
and businesses, would be worked down, which could result in significantly slower
economic growth during the first half of 2000, perhaps to a level below 4%,
compared with a robust 7.30% rate of growth in the last quarter of 1999, which
we felt was unsustainable.
================================================================================
Our disciplined, bottom-up stock selection contributed significantly to our
solid investment returns, as we focused on companies offering the potential for
well-above-average earnings growth, combined with attractive relative valuation
profiles.
================================================================================
Concurrently, the Federal Reserve continued to aggressively tighten
monetary policy. On the heels of three modest 25 basis point (0.25%) hikes in
June, August and November of 1999, Chairman Alan Greenspan engineered a pair of
quarter-point increases in February and March of this year, trumped by a
50-basis-point (0.50%) tightening at the May 16th Federal Open Market Committee
meeting.
Combined with the inventory reduction, higher interest rates will help to
ensure slower future economic growth. There is a lag, however, between the time
that a change in interest rates is implemented and when its subsequent impact on
the economy starts to become discernable.
--------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund.
(3) The NASDAQ Composite Index is a broad-based capitalization-weighted index
of all NASDAQ National Market stocks. The Index is not available for
direct investment and its returns do not reflect the fees and expenses
that have been deducted from the Fund.
(4) The Dow Jones Industrial Average (DJIA) is an unmanaged index of 30
industrial stocks listed on the New York Stock Exchange that is generally
considered to be representative of U.S. stock market activity.
--------------------------------------------------------------------------------
24
<PAGE>
--------------------------------------------------------------------------------
Much like trying to turn a battleship in the ocean, it takes about six to nine
months for one-half of the effect of an interest-rate change to begin to impact
the economy. Further, it takes about 12 to 18 months for the full effect of that
interest-rate change to begin to work its magic.
As a result, with the first of six rate hikes in June 1999, and the most
recent occurring in May 2000, it is perfectly plausible that the economic
slowdown that such policy action would presage is just now starting to become
visible.
Q. What is your outlook for the future?
A. Looking forward, we believe that the backup in long rates earlier this year
to about 6.75% should represent the high water mark for 2000, and that the
recent rally back below 6.00% has legs. Specifically, as the inventory stockpile
is further reduced and as the Fed's six rate hikes work their way through the
pipeline, Gross Domestic Product should slow even more - to perhaps 3.0% by year
end -- and the 30-year Treasury bond should continue to rally, with the yield
approaching 5.50% later this year and perhaps 5.0% during 2001. Given positive
corporate earnings, particularly among technology and telecommunication
companies, we expect an election-year rally, which could propel the
equity-market indices to new all-time highs by the end of the year.
--------------------------------------------------------------------------------
Value Line Centurion Fund Profile
---------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIOD ENDED JUNE 30, 2000
================================================================================
1 Year ................................................................. 19.00%
5 Years ................................................................ 22.19%
10 Years ............................................................... 18.46%
Since Inception (11/15/83) ............................................. 15.56%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Top Ten Holdings
as of June 30, 2000
Percentage
Company of Portfolio
--------------------------------------------------------------------------------
1. Cisco Systems Inc. 2.21%
--------------------------------------------------------------------------------
2. General Electric Co. 2.16%
--------------------------------------------------------------------------------
3. Altera Corp. 2.05%
--------------------------------------------------------------------------------
4. Chase Manhattan Corp. 2.00%
--------------------------------------------------------------------------------
5. American Int'l Group Inc. 2.00%
--------------------------------------------------------------------------------
6. Citigroup Inc. 1.97%
--------------------------------------------------------------------------------
7. PMC-Sierra Inc. 1.93%
--------------------------------------------------------------------------------
8. EMC Corp. 1.88%
--------------------------------------------------------------------------------
9. Intel Corp. 1.82%
--------------------------------------------------------------------------------
10. Kohls Corp. 1.82%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
[The following was represented by a pie chart in the printed material.]
Consumer Goods
(Non-Durables) -- 11.87%
Consumer Cyclical -- 0.97%
Consumer Growth -- 23.92%
Capital Goods -- 8.21%
Utilities -- 0.99%
Financial -- 15.57%
Technology -- 36.68%
Cash -- 1.79%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
25
<PAGE>
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
-------------------------------------------
[Photo of Bruce H. Alston, CFA, Director of Fixed Income; Stephen EE. Grant,
Senior Portfolio Manager and SAM Team Leader; and Philip J. Orlando, CFA, Chief
Financial Officer]
Objective: High total return consistent with reasonable risk
Portfolio: Stocks, bonds and money market instruments
Inception: October 1, 1987
Net Assets at June 30, 2000: $1,609,234,254
Q. How did the Value Line Strategic Asset Management Trust perform in the first
half of 2000?
A. The Trust enjoyed a good six months, both in absolute terms and relative to
its benchmarks. Its total return in the period was 5.21%.(1) This compared with
a total return of -0.42% for the S&P 500 Index(2) and a total return of 4.18%
for the Lehman Government/Corporate Bond Index.(3)
Since inception 13 years ago, the SAM Trust has returned more than the S&P
500, even while maintaining a reduced risk profile through its significant
holdings of bonds and cash. Among its peer group, the flexible variable annuity
underlying funds tracked by Lipper Analytical Services,(4) the Trust ranks 9th
out of 89 funds for the year ending June 30th, 4th out of 65 funds for five
years, and 1st out of 44 funds for ten years.
Q. What factors affected performance in the six-month period?
A. As in the past, the Trust benefited from excellent stock selection. We invest
in companies with strong earnings momentum and strong stock price momentum and
eliminate holdings that begin to lag on these measures. A recent purchase was
ADC Telecommunications, an equipment manufacturer that reported strong quarterly
earnings in February. We paid a near-record high average price of $45 for the
shares in February and March, and the stock closed June 30th at $84. Holdings
that more than doubled in share price in the first half included
Scientific-Atlanta, a cable equipment manufacturer purchased by the Trust in
1999 at $16, which closed this period at $74; Waters Corp., a producer of life
sciences instruments purchased at $25-$32 in 1998, which closed the period at
$125; and PMC-Sierra, a semiconductor manufacturer purchased in 1998 at $14,
which closed the period at $177.
Our asset allocation in the six-month period did not have a large effect
on performance. The Trust began the year at an underweighted 44% of assets in
stocks and
================================================================================
"We invest in companies with strong earnings momentum and strong stock price
momentum and eliminate holdings that begin to lag on these measures."
================================================================================
moved up to a neutral 55%-60% position in March, where it has since remained.
Bond holdings began the year at 39% of assets and were reduced to 30%-35% in
March. Cash instruments in the period were reduced from 16% of assets to 11%. To
determine asset allocation, we use Value Line's proprietary stock and bond
market models.
Q. What is your outlook for the rest of the year?
A. Our allocation models remain essentially neutral on
--------------------------------------------------------------------------------
(1) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies which provide for investment in the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of an investment,
when redeemed, may be worth more or less than the original cost.
(2) The S&P 500 Index is an unmanaged index of 500 large-cap U.S. stocks that
is generally considered to be representative of U.S. stock market
activity. The S&P 500 Index is not available for direct investment and its
returns do not reflect the fees and expenses that have been deducted from
the Fund.
(3) The Lehman Government/Corporate Bond Index is an unmanaged index that is
generally considered to be representative of U.S. government and corporate
bond market activity. The Lehman Government/Corporate Bond Index is not
available for direct investment and the returns do not reflect the fees
and expenses that have been deducted from the Fund.
(4) Lipper Analytical Services, Inc. is an independent mutual fund monitoring
and rating service. Its database of performance information is based on
historical total returns, which assume the reinvestment of dividends and
distributions, and the deduction of all fund expenses.
--------------------------------------------------------------------------------
26
<PAGE>
--------------------------------------------------------------------------------
the U.S. financial markets for the months ahead. We don't try to anticipate
changes in the models' readings, but we can say that a further decline in
long-term interest rates would tilt us toward favoring stocks over bonds; on the
other hand, a rise in stock prices, all else held equal, would point to trimming
the Trust's stockholdings.
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust Profile
---------------------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
FOR PERIODS ENDED JUNE 30, 2000
================================================================================
1 Year ................................................................. 18.04%
5 Years ................................................................ 19.97%
10 Years ............................................................... 17.18%
Since Inception (10/1/87) .............................................. 15.96%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Portfolio Composition
by Economic Sector
as of June 30, 2000
[The following was represented by a pie chart in the printed material.]
Cash & Equivalents -- 9.68%
Equity -- 57.35%
Fixed Income -- 32.97%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Top Ten Common Stocks as of
June 30, 2000
Percentage of
Company Portfolio
--------------------------------------------------------------------------------
1. Mercury Interactive Corp. 1.99%
--------------------------------------------------------------------------------
2. General Electric Co. 1.79%
--------------------------------------------------------------------------------
3. PMC-Sierra Inc. 1.74%
--------------------------------------------------------------------------------
4. Siebel Systems Inc. 1.70%
--------------------------------------------------------------------------------
5. Cisco Systems Inc. 1.58%
--------------------------------------------------------------------------------
6. Millennium Pharmaceuticals Inc. 1.20%
--------------------------------------------------------------------------------
7. Symbol Technologies Inc. 1.17%
--------------------------------------------------------------------------------
8. JDS Uniphase Corp. 1.16%
--------------------------------------------------------------------------------
9. Enron Corp. 1.13%
--------------------------------------------------------------------------------
10. Allergan Inc. 0.99%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
27
<PAGE>
--------------------------------------------------------------------------------
The Guardian Cash Fund
----------------------
[Photo of Alexander M. Grant, Jr., Portfolio Manager]
Objective: As high a level of current income as is consistent with preservation
of capital and liquidity
Portfolio: Short-term money market instruments
Inception: November 1, 1981
Net Assets at June 30, 2000: $415,816,706
Q. How did The Guardian Cash Fund perform during the first six months of 2000?
A. As of June 27, 2000, the effective 7-day annualized yield for The Guardian
Cash Fund was 6.31%.(1) The Fund produced an annualized total return of 5.65%(2)
for the half-year ended June 30, 2000. In contrast, the effective 7-day
annualized yield of Tier One money market funds as measured by iMoneyNet, Inc.
was 6.08%; total return for the same category was 5.43%. iMoneyNet, Inc.
(formerly IBC Financial Data) is a research firm that tracks money market funds.
Q. What was your investment strategy during the year?
A. The Guardian Cash Fund is a place for our investors to put their money while
they determine their preferred long term investment vehicle, be it stocks or
bonds. Also, some of our investors prefer the relative stability of the money
markets. To best accommodate all our investors, we will continue to try to
provide a strong 7-day yield, while offering safety and liquidity. Our
investment strategy was to create a diversified portfolio of money market
instruments that presents minimal credit risks according to our criteria. As
always, we only purchased securities from issuers that had received ratings in
the two highest credit quality categories established by nationally recognized
statistical ratings organizations like Moody's Investors Service Inc. and
Standard & Poor's Corporation for the Fund's portfolio. Most of the portfolio
(94.7%) was invested in commercial paper; the balance (5.3%) was invested in
repurchase agreements.
Q. What factors affected the Fund's performance?
A. Money market funds are directly affected by the actions of the Federal
Reserve Board (FED). Over the last twelve months, the Fed's policy-making Open
Market Committee (FOMC) raised the Fed Funds target rate six times, a combined
1.75% to a nine-year high of 6.50%. The Fed Funds target is the rate at which
banks can borrow from each other overnight. While the Federal Reserve Board does
not set this rate, it can establish a target rate and, through open market
operations, the Fed can
================================================================================
"Money market funds are directly affected by the actions of the Federal Reserve
Board. Over the last twelve months the Fed's policy-making Open Market Committee
(FOMC) raised the Fed Funds target rate six times, a combined 1.75% to a
nine-year high of 6.50%."
================================================================================
move member banks in the direction of that target rate. The Discount Rate is the
rate at which banks can borrow directly from the Federal Reserve. Another factor
affecting performance was the portfolio's average maturity of 25 days as of June
27, 2000. The average Tier One money market fund as measured by iMoneyNet, Inc.
had an average maturity of 56 days.
Q. What is your outlook for the remainder of the year?
A. Uncertainty with the direction of the stock market contributes to large daily
inflows and outflows of funds in the Cash Fund. As the stock market rallies, our
investors typically transferred cash to equity funds. During those times when
the stock market stalls, we see cash inflows. Due to the relatively short
average days-to-maturity, these daily fluctuations have little effect on the
Fund.
--------------------------------------------------------------------------------
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $10.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE FUND.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1) Yields are annualized historical figures. Effective yield assumes
reinvested income. Yields will vary as interest rates change. Past
performance is not a guarantee of future results.
(2) Total return figures are historical and assume the reinvestment of
dividends and distributions and the deduction of all Fund expenses. The
actual total returns for owners of the variable annuity contracts or
variable life insurance policies that provide for investment for the Fund
will be lower to reflect separate account and contract/policy charges.
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that the value of your investment,
when redeemed, may be worth more or less than the original cost.
--------------------------------------------------------------------------------
28
<PAGE>
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
29
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
STATEMENT OF ASSETS ANDLIABILITIES
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------
Guardian Guardian
Guardian VC 500 VC Asset
Stock Index Allocation
-------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ........... 2,095,017 22 46
Net asset value per share (NAV) ..................... 57.02 10.70 11.16
------------ ------------ ------------
Total Assets (Shares x NAV) ...................... $119,457,892 $ 233 $ 509
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. 792,571 -- --
------------ ------------ ------------
-------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ............................. $118,665,321 $ 233 $ 509
-------------------------------------------------------------------------------------------------------
============ ============ ============
Number of units outstanding ........................... 4,298,827 24 50
Unit value ............................................ 27.60 9.93 10.09
FIFO Cost ............................................. $105,701,975 $ 236 $ 502
<CAPTION>
--------------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------------
Gabelli Baillie
Guardian Guardian Capital Gifford
Bond Cash Asset International
--------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ........... 107,549 261,949 79,163 293,227
Net asset value per share (NAV) ..................... 11.81 10.00 18.03 24.61
---------- ---------- ---------- ----------
Total Assets (Shares x NAV) ...................... $1,270,158 $2,619,489 $1,427,317 $7,216,304
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. 9,726 20,491 8,242 48,287
---------- ---------- ---------- ----------
--------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ............................. $1,260,432 $2,598,998 $1,419,075 $7,168,017
--------------------------------------------------------------------------------------------------------------------
========== ========== ========== ==========
Number of units outstanding ........................... 99,670 210,957 106,535 349,225
Unit value ............................................ 12.65 12.32 13.32 20.53
FIFO Cost ............................................. $1,257,344 $2,619,489 $1,381,860 $6,385,265
<CAPTION>
-------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------
Baillie
Gifford Guardian
Emerging Small Cap Value Line
Markets Stock Centurion
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ........... 33,670 237,257 275,469
Net asset value per share (NAV) ..................... 12.16 19.19 37.09
-------- ---------- -----------
Total Assets (Shares x NAV) ...................... $409,428 $4,552,954 $10,217,145
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. 1,626 29,817 73,556
-------- ---------- -----------
------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ............................. $407,802 $4,523,137 $10,143,589
------------------------------------------------------------------------------------------------------
======== ========== ===========
Number of units outstanding ........................... 32,680 315,334 435,942
Unit value ............................................ 12.48 14.34 23.27
FIFO Cost ............................................. $407,557 $3,214,636 $ 8,152,804
</TABLE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
-----------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------
Guardian Guardian
Guardian VC 500 VC Asset
Stock Index Allocation
-----------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ -- $ -- $ --
Expenses-- Note 3:
Mortality and expense risk charges ....................................... 352,883 -- --
----------- ----------- -----------
Net investment income/(expense) ............................................ (352,883) -- --
----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 1,202,139 -- --
Reinvested realized gain distributions ................................... -- -- --
----------- ----------- -----------
Net realized gain/(loss) on investments .................................... 1,202,139 -- --
Net change in unrealized appreciation/(depreciation) of investments ........ 2,526,695 (3) 7
----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ..................... 3,728,834 (3) 7
----------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ 3,375,951 $ (3) $ 7
-----------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
<CAPTION>
-----------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------
Gabelli
Guardian Guardian Capital
Bond Cash Asset
-----------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ -- $ 75,657 $ --
Expenses-- Note 3:
Mortality and expense risk charges ....................................... 3,898 8,572 3,767
----------- ----------- -----------
Net investment income/(expense) ............................................ (3,898) 67,085 (3,767)
----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ (49,340) -- 8,161
Reinvested realized gain distributions ................................... -- -- --
----------- ----------- -----------
Net realized gain/(loss) on investments .................................... (49,340) -- 8,161
Net change in unrealized appreciation/(depreciation) of investments ........ 90,833 -- 37,913
----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ..................... 41,493 -- 46,074
----------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ 37,595 $ 67,085 $ 42,307
-----------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
<CAPTION>
------------------------------------------------
INVESTMENT DIVISIONS
------------------------------------------------
Baillie
Baillie Gifford Guardian
Gifford Emerging Small Cap Value Line
International Markets Stock Centurion
------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ -- $ -- $ -- $ --
Expenses-- Note 3:
Mortality and expense risk charges ....................................... 18,376 913 14,419 30,730
---------- --------- --------- ---------
Net investment income/(expense) ............................................ (18,376) (913) (14,419) (30,730)
---------- --------- --------- ---------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 122,768 21,110 97,482 151,105
Reinvested realized gain distributions ................................... -- -- -- --
---------- --------- --------- ---------
Net realized gain/(loss) on investments .................................... 122,768 21,110 97,482 151,105
Net change in unrealized appreciation/(depreciation) of investments ........ (720,481) (53,051) 373,527 140,414
---------- --------- --------- ---------
Net realized and unrealized gain/(loss) from investments ..................... (597,713) (31,941) 471,009 291,519
---------- --------- --------- ---------
---------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ (616,089) $ (32,854) $ 456,590 $ 260,789
---------------------------------------------------------------------------------------------------------------------------------
========== ========= ========= =========
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
30 & 31
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------
INVESTMENT DIVISIONS
------------------------------------
Value Line
Strategic AIM V.I. AIM V.I.
Asset Capital Global
Management Appreciation Utilities
------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund-- Note 1 ............ 318,347 35,038 188
Net asset value per share (NAV) ..................... 30.92 38.51 23.94
---------- ---------- ----------
Total Assets (Shares x NAV) ...................... $9,843,292 $1,349,297 $ 4,497
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. 65,810 5,362 3
---------- ---------- ----------
-------------------------------------------------------------------------------------------------
Net Assets-- Note 4 ............................... $9,777,482 $1,343,935 $ 4,494
-------------------------------------------------------------------------------------------------
========== ========== ==========
Number of units outstanding ........................... 433,535 74,695 452
Unit value ............................................ 22.55 17.99 9.95
FIFO Cost ............................................. $8,016,257 $1,229,890 $ 4,086
<CAPTION>
------------------------------------
INVESTMENT DIVISIONS
------------------------------------
American American
AIM V.I. Century VP Century VP
Value International Value
------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund-- Note 1 ............ 136,960 91,175 19,185
Net asset value per share (NAV) ..................... 33.41 11.56 5.42
---------- ---------- ----------
Total Assets (Shares x NAV) ...................... $4,575,834 $1,053,983 $ 103,984
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. 23,111 4,954 733
---------- ---------- ----------
-------------------------------------------------------------------------------------------------
Net Assets-- Note 4 ............................... $4,552,723 $1,049,029 $ 103,251
-------------------------------------------------------------------------------------------------
========== ========== ==========
Number of units outstanding ........................... 278,326 65,405 11,479
Unit value ............................................ 16.36 16.04 8.99
FIFO Cost ............................................. $4,232,404 $ 932,369 $ 111,865
<CAPTION>
-------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------
Fidelity Fidelity Fidelity Fidelity
VIP Equity- VIP High VIP II VIP II
Income Income Contrafund Index 500
Original Original Original Original
Class Class Class Class
-------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund-- Note 1 ............ 18,395 13,497 320 37,605
Net asset value per share (NAV) ..................... 22.91 10.04 25.09 163.91
---------- ---------- ---------- ----------
Total Assets (Shares x NAV) ...................... $ 421,438 $ 135,512 $ 8,019 $6,163,881
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. 2,627 1,387 4 29,334
---------- ---------- ---------- ----------
-----------------------------------------------------------------------------------------------------------------
Net Assets-- Note 4 ............................... $ 418,811 $ 134,125 $ 8,015 $6,134,547
-----------------------------------------------------------------------------------------------------------------
========== ========== ========== ==========
Number of units outstanding ........................... 37,810 14,197 814 422,785
Unit value ............................................ 11.08 9.45 9.84 14.51
FIFO Cost ............................................. $ 451,298 $ 145,851 $ 7,640 $5,902,986
</TABLE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
-----------------------------------
INVESTMENT DIVISIONS
-----------------------------------
Value Line
Strategic AIM V.I. AIM V.I.
Asset Capital Global
Management Appreciation Utilities
-----------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ -- $ -- $ --
Expenses-- Note 3:
Mortality and expense risk charges ....................................... 30,394 3,071 3
--------- --------- ---------
Net investment income/(expense) ............................................ (30,394) (3,071) 3
--------- --------- ---------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 166,463 23,173 5
Reinvested realized gain distributions ................................... -- -- --
--------- --------- ---------
Net realized gain/(loss) on investments .................................... 166,463 23,173 5
Net change in unrealized appreciation/(depreciation) of investments ........ 314,445 10,078 411
--------- --------- ---------
Net realized and unrealized gain/(loss) from investments ..................... 480,908 33,251 416
--------- --------- ---------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ 450,514 $ 30,180 $ 413
--------- --------- ---------
<CAPTION>
------------------------------------
INVESTMENT DIVISIONS
------------------------------------
American American
AIM V.I. Century VP Century VP
Value International Value
------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ -- $ 944 $ 885
Expenses-- Note 3:
Mortality and expense risk charges ....................................... 12,342 2,301 217
--------- --------- ---------
Net investment income/(expense) ............................................ (12,342) (1,357) 668
--------- --------- ---------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 102,508 15,493 (1,806)
Reinvested realized gain distributions ................................... -- 14,119 2,264
--------- --------- ---------
Net realized gain/(loss) on investments .................................... 102,508 29,612 458
Net change in unrealized appreciation/(depreciation) of investments ........ (105,174) (93,199) (4,044)
--------- --------- ---------
Net realized and unrealized gain/(loss) from investments ..................... (2,666) (63,587) (3,586)
--------- --------- ---------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ (15,008) $ (64,944) $ (2,918)
--------- --------- ---------
<CAPTION>
-------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------
Fidelity Fidelity Fidelity Fidelity
VIP Equity- VIP High VIP II VIP II
Income Income Contrafund Index 500
Original Original Original Original
Class Class Class Class
-------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ 6,239 $ 9,010 $ -- $ 43,070
Expenses-- Note 3:
Mortality and expense risk charges ....................................... 1,119 336 4 15,758
--------- --------- --------- ---------
Net investment income/(expense) ............................................ 5,120 8,674 (4) 27,312
--------- --------- --------- ---------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ (1,974) (2,954) 4 69,650
Reinvested realized gain distributions ................................... 23,506 -- -- 18,827
--------- --------- --------- ---------
Net realized gain/(loss) on investments .................................... 21,532 (2,954) 4 88,477
Net change in unrealized appreciation/(depreciation) of investments ........ (35,710) (12,359) 379 (163,923)
--------- --------- --------- ---------
Net realized and unrealized gain/(loss) from investments ..................... (14,178) (15,313) 383 (75,446)
--------- --------- --------- ---------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ (9,058) $ (6,639) $ 379 $ (48,134)
--------- --------- --------- ---------
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
32 & 33
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
--------------------------------------
INVESTMENT DIVISIONS
--------------------------------------
Fidelity
VIP III
Growth
Opportunities Janus Janus
Original Aggressive Capital
Class Growth Appreciation
--------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund-- Note 1 ............ 104,861 5,502 4,042
Net asset value per share (NAV) ..................... 20.61 55.80 31.73
---------- ---------- ----------
Total Assets (Shares x NAV) ....................... $2,161,181 $ 306,993 $ 128,268
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. 11,417 55 13
---------- ---------- ----------
-------------------------------------------------------------------------------------------------
Net Assets-- Note 4 ............................... $2,149,764 $ 306,938 $ 128,255
-------------------------------------------------------------------------------------------------
========== ========== ==========
Number of units outstanding ........................... 180,085 30,264 13,768
Unit value ............................................ 11.94 10.14 9.32
FIFO Cost ............................................. $2,274,827 $ 321,962 $ 128,530
<CAPTION>
------------------------------------
INVESTMENT DIVISIONS
------------------------------------
Janus
Janus Worldwide MFS
Growth Growth Bond
------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund-- Note 1 ............ 604 2,814 4,360
Net asset value per share (NAV) ..................... 32.89 48.03 10.64
---------- ---------- ----------
Total Assets (Shares x NAV) ....................... $ 19,857 $ 135,146 $ 46,390
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. 5 49 445
---------- ---------- ----------
-------------------------------------------------------------------------------------------------
Net Assets-- Note 4 ............................... $ 19,852 $ 135,097 $ 45,945
-------------------------------------------------------------------------------------------------
========== ========== ==========
Number of units outstanding ........................... 2,045 13,832 4,347
Unit value ............................................ 9.71 9.77 10.57
FIFO Cost ............................................. $ 20,185 $ 134,807 $ 48,037
<CAPTION>
-----------------------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------------------
MFS MFS MFS
Emerging Growth with New MFS MFS
Growth Income Discovery Research Total Return
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund-- Note 1 ............ 88,246 107,670 320 -- 9,550
Net asset value per share (NAV) ..................... 35.05 21.15 18.36 -- 17.33
---------- ---------- ---------- ------ ----------
Total Assets (Shares x NAV) ....................... $3,093,029 $2,277,210 $ 5,867 $ -- $ 165,502
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. 12,627 14,435 -- -- 1,027
---------- ---------- ---------- ------ ----------
-----------------------------------------------------------------------------------------------------------------------
Net Assets-- Note 4 ............................... $3,080,402 $2,262,775 $ 5,867 $ -- $ 164,475
-----------------------------------------------------------------------------------------------------------------------
========== ========== ========== ====== ==========
Number of units outstanding ........................... 145,782 164,203 567 -- 14,294
Unit value ............................................ 21.13 13.78 10.34 -- 11.51
FIFO Cost ............................................. $2,951,304 $2,197,976 $ 5,777 $ -- $ 168,370
</TABLE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
--------------------------------------
INVESTMENT DIVISIONS
--------------------------------------
Fidelity
VIP III
Growth
Opportunities Janus Janus
Original Aggressive Capital
Class Growth Appreciation
--------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ 21,787 $ 15,276 $ 389
Expenses-- Note 3:
Mortality and expense risk charges ....................................... 5,391 55 13
--------- --------- ---------
Net investment income/(expense) ............................................ 16,396 15,221 376
--------- --------- ---------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ (12,381) 14 10
Reinvested realized gain distributions ................................... 110,492 7,116 50
--------- --------- ---------
Net realized gain/(loss) on investments .................................... 98,111 7,130 60
Net change in unrealized appreciation/(depreciation)
of investments ........................................................... (161,492) (14,969) (262)
--------- --------- ---------
Net realized and unrealized gain/(loss) from investments ..................... (63,381) (7,839) (202)
--------- --------- ---------
-----------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ ............ (46,985) $ 7,382 $ 174
-----------------------------------------------------------------------------------------------------------------------
========= ========= =========
<CAPTION>
----------------------------------
INVESTMENT DIVISIONS
----------------------------------
Janus
Janus Worldwide MFS
Growth Growth Bond
----------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ 235 $ 437 $ 2,269
Expenses-- Note 3:
Mortality and expense risk charges ....................................... 5 49 155
--------- --------- ---------
Net investment income/(expense) ............................................ 230 388 2,114
--------- --------- ---------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 2 12 (185)
Reinvested realized gain distributions ................................... 393 1,303 --
--------- --------- ---------
Net realized gain/(loss) on investments .................................... 395 1,315 (185)
Net change in unrealized appreciation/(depreciation)
of investments ........................................................... (328) 339 (659)
--------- --------- ---------
Net realized and unrealized gain/(loss) from investments ..................... 67 1,654 (844)
--------- --------- ---------
----------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ ............ $ 297 $ 2,042 $ 1,270
----------------------------------------------------------------------------------------------------------------------
========= ========= =========
<CAPTION>
--------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------
MFS MFS MFS
Emerging Growth with New MFS MFS
Growth Income Discovery Research Total Return
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ -- $ 9,461 $ -- $ -- $ 3,710
Expenses-- Note 3:
Mortality and expense risk charges ....................................... 6,884 6,368 -- -- 463
--------- -------- ------- ------ -------
Net investment income/(expense) ............................................ (6,884) 3,093 -- -- 3,247
--------- -------- ------- ------ -------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 193,566 57,592 1 -- (1,482)
Reinvested realized gain distributions ................................... 133,517 17,179 -- -- 3,573
--------- -------- ------- ------ -------
Net realized gain/(loss) on investments .................................... 327,083 74,771 1 -- 2,091
Net change in unrealized appreciation/(depreciation)
of investments ........................................................... (404,870) (62,626) 90 -- (1,968)
--------- -------- ------- ------ -------
Net realized and unrealized gain/(loss) from investments ..................... (77,787) 12,145 91 -- 123
--------- -------- ------- ------ -------
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ ............ $ (84,671) $ 15,238 $ 91 $ -- $ 3,370
-----------------------------------------------------------------------------------------------------------------------------------
========= ======== ======= ====== =======
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
34 & 35
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1999 (Audited) and
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------
INVESTMENT DIVISIONS
------------------------------------------------
Guardian Guardian
Guardian VC 500 VC Asset Guardian
Stock Index Allocation Bond
------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------
1999 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ (159,919) $ -- $ -- $ 54,841
Net realized gain/(loss) from sale of investments ................. 1,325,605 -- -- (4,349)
Reinvested realized gain distributions ............................ 13,654,816 -- -- 2,663
Net Change in unrealized appreciation/(depreciation) of investments 8,347,267 -- -- (66,810)
------------- ------ ------ -------------
Net increase/(decrease) resulting from operations ................. 23,167,769 -- -- (13,655)
------------- ------ ------ -------------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ...................................... 40,171,243 -- -- 564,988
Transfer on account of other terminations ......................... (3,434,504) -- -- (36,707)
Transfer of policy loans .......................................... (2,780,926) -- -- (25,016)
Transfer of cost of insurance and policy fees -- Note 3 ........... (10,206,068) -- -- (129,534)
Transfer between investment divisions ............................. (2,907,439) -- -- (49,007)
Transfers -- other ................................................ (61,922) -- -- 474
------------- ------ ------ -------------
Net increase/(decrease) from policy transactions .................. 20,780,384 -- -- 325,198
------------- ------ ------ -------------
Total Increase/(Decrease) in Net Assets .............................. 43,948,153 -- -- 311,543
Net Assets at December 31, 1998 ................................... 60,213,446 -- -- 816,913
------------- ------ ------ -------------
---------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 104,161,599 $ -- $ -- $ 1,128,456
---------------------------------------------------------------------------------------------------------------------------
============= ====== ====== =============
<CAPTION>
-----------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------
Gabelli Baillie
Guardian Capital Gifford
Cash Asset International
-----------------------------------------------
<S> <C> <C> <C>
---------------------------------------
1999 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ 96,849 $ (2,716) $ (11,532)
Net realized gain/(loss) from sale of investments ................. -- 9,887 142,151
Reinvested realized gain distributions ............................ -- 93,608 496,655
Net Change in unrealized appreciation/(depreciation) of investments -- 1,093 1,289,281
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 96,849 101,872 1,916,555
------------- ------------- -------------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ...................................... 2,218,578 559,201 2,350,183
Transfer on account of other terminations ......................... (56,117) (5,615) (322,891)
Transfer of policy loans .......................................... (10,943) (17,743) (170,218)
Transfer of cost of insurance and policy fees -- Note 3 ........... (324,257) (123,479) (570,782)
Transfer between investment divisions ............................. (1,442,011) 188,975 (244,599)
Transfers -- other ................................................ 739 (430) (4,365)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. 385,989 600,909 1,037,328
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 482,838 702,781 2,953,883
Net Assets at December 31, 1998 ................................... 2,261,842 285,297 4,285,073
------------- ------------- -------------
--------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 2,744,680 $ 988,078 $ 7,238,956
--------------------------------------------------------------------------------------------------------------------------
============= ============= =============
<CAPTION>
-----------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------
Baillie
Gifford Guardian
Emerging Small Cap Value Line
Markets Stock Centurion
-----------------------------------------------
<S> <C> <C> <C>
---------------------------------------
1999 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ (681) $ (12,137) $ (31,315)
Net realized gain/(loss) from sale of investments ................. 5,796 (110,496) 239,620
Reinvested realized gain distributions ............................ -- -- 554,526
Net Change in unrealized appreciation/(depreciation) of investments 53,916 1,036,194 1,138,849
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 59,031 913,561 1,901,680
------------- ------------- -------------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ...................................... 62,476 1,522,695 2,926,594
Transfer on account of other terminations ......................... (178) (169,392) (682,439)
Transfer of policy loans .......................................... (5,752) (21,737) (272,806)
Transfer of cost of insurance and policy fees -- Note 3 ........... (14,180) (363,566) (758,065)
Transfer between investment divisions ............................. 81,037 (131,585) 106,401
Transfers -- other ................................................ 386 777 12,773
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. 123,789 837,192 1,332,458
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 182,820 1,750,753 3,234,138
Net Assets at December 31, 1998 ................................... 18,810 1,792,336 5,964,987
------------- ------------- -------------
--------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 201,630 $ 3,543,089 $ 9,199,125
--------------------------------------------------------------------------------------------------------------------------
============= ============= =============
</TABLE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------------
Guardian Guardian
Guardian VC 500 VC Asset Guardian
Stock Index Allocation Bond
-------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------
2000 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ (352,883) $ -- $ -- $ (3,898)
Net realized gain/(loss) from sale of investments ................. 1,202,139 -- -- (49,340)
Reinvested realized gain distributions ............................ -- -- -- --
Net change in unrealized appreciation/(depreciation) of investments 2,526,695 (3) 7 90,833
------------- ---------- --------- -----------
Net increase/(decrease) resulting from operations ................. 3,375,951 (3) 7 37,595
------------- ---------- --------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ...................................... 22,324,273 9 516 277,612
Transfer on account of other terminations ......................... (3,096,118) -- -- (37,764)
Transfer of policy loans .......................................... (1,520,396) -- -- (10,637)
Transfer of cost of insurance and policy fees -- Note 3 ........... (5,592,885) -- (14) (61,728)
Transfer between investment divisions ............................. (937,047) 223 -- (72,406)
Transfers -- other ................................................ (50,056) 4 -- (696)
------------- ---------- --------- -----------
Net increase/(decrease) from policy transactions .................. 11,127,771 236 502 94,381
------------- ---------- --------- -----------
Total Increase/(Decrease) in Net Assets .............................. 14,503,722 233 509 131,976
Net Assets at December 31, 1999 ................................... 104,161,599 -- -- 1,128,456
------------- ---------- --------- -----------
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ....................................... $ 118,665,321 $ 233 $ 509 $ 1,260,432
-----------------------------------------------------------------------------------------------------------------------------------
============= ========== ========= ===========
<CAPTION>
<CAPTION>
-----------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------
Gabelli Baillie
Guardian Capital Gifford
Cash Asset International
-----------------------------------------------
<S> <C> <C> <C>
---------------------------------------
2000 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ 67,085 $ (3,767) $ (18,376)
Net realized gain/(loss) from sale of investments ................. -- 8,161 122,768
Reinvested realized gain distributions ............................ -- -- --
Net change in unrealized appreciation/(depreciation) of investments -- 37,913 (720,481)
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. 67,085 42,307 (616,089)
------------- ------------- -------------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ...................................... 1,641,671 414,671 1,330,410
Transfer on account of other terminations ......................... (69,890) (12,914) (271,068)
Transfer of policy loans .......................................... (1,479) (19,152) (146,247)
Transfer of cost of insurance and policy fees -- Note 3 ........... (219,873) (85,474) (319,615)
Transfer between investment divisions ............................. (1,564,049) 91,850 (38,337)
Transfers -- other ................................................ 853 (291) (9,993)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. (212,767) 388,690 545,150
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. (145,682) 430,997 (70,939)
Net Assets at December 31, 1999 ................................... 2,744,680 988,078 7,238,956
------------- ------------- -------------
---------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ....................................... $ 2,598,998 $ 1,419,075 $ 7,168,017
---------------------------------------------------------------------------------------------------------------------------
============= ============= =============
<CAPTION>
-----------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------
Baillie
Gifford Guardian
Emerging Small Cap Value Line
Markets Stock Centurion
-----------------------------------------------
<S> <C> <C> <C>
---------------------------------------
2000 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ (913) $ (14,419) $ (30,730)
Net realized gain/(loss) from sale of investments ................. 21,110 97,482 151,105
Reinvested realized gain distributions ............................ -- -- --
Net change in unrealized appreciation/(depreciation) of investments (53,051) 373,527 140,414
------------- ------------- -------------
Net increase/(decrease) resulting from operations ................. (32,854) 456,590 260,789
------------- ------------- -------------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ...................................... 95,865 831,184 1,705,985
Transfer on account of other terminations ......................... (114) (26,821) (440,539)
Transfer of policy loans .......................................... (579) (52,337) (83,624)
Transfer of cost of insurance and policy fees -- Note 3 ........... (18,467) (213,454) (410,495)
Transfer between investment divisions ............................. 162,033 (5,655) (71,923)
Transfers -- other ................................................ 288 (9,459) (15,729)
------------- ------------- -------------
Net increase/(decrease) from policy transactions .................. 239,026 523,458 683,675
------------- ------------- -------------
Total Increase/(Decrease) in Net Assets .............................. 206,172 980,048 944,464
Net Assets at December 31, 1999 ................................... 201,630 3,543,089 9,199,125
------------- ------------- -------------
---------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ....................................... $ 407,802 $ 4,523,137 $ 10,143,589
---------------------------------------------------------------------------------------------------------------------------
============= ============= =============
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
36 & 37
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1999 (Audited) and
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------
Value Line
Strategic AIM V.I. AIM V.I.
Asset Capital Global AIM V.I.
Management Appreciation Utilities Value
--------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------
1999 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ 24,058 $ (1,716) $ -- $ (1,464)
Net realized gain/(loss) from sale of investments ................. 93,618 19,527 -- 31,006
Reinvested realized gain distributions ............................ 346,059 8,629 -- 47,273
Net Change in unrealized appreciation/(depreciation) of investments 979,634 96,748 -- 436,555
----------- ----------- ------ -----------
Net increase/(decrease) resulting from operations ................. 1,443,369 123,188 -- 513,370
----------- ----------- ------ -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ...................................... 2,975,722 151,803 -- 1,539,999
Transfer on account of other terminations ......................... (176,858) (743) -- (18,182)
Transfer of policy loans .......................................... (186,814) -- -- 1,007
Transfer of cost of insurance and policy fees -- Note 3 ........... (741,671) (27,896) -- (229,233)
Transfer between investment divisions ............................. 324,318 77,662 -- 1,668,384
Transfers -- other ................................................ (4,301) (205) -- (6,609)
----------- ----------- ------ -----------
Net increase/(decrease) from policy transactions .................. 2,190,396 200,621 -- 2,955,366
----------- ----------- ------ -----------
Total Increase/(Decrease) in Net Assets .............................. 3,633,765 323,809 -- 3,468,736
Net Assets at December 31, 1998 ................................... 4,990,528 139,044 -- 129,811
----------- ----------- ------ -----------
------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 8,624,293 $ 462,853 $ -- $ 3,598,547
------------------------------------------------------------------------------------------------------------------------------
=========== =========== ====== ===========
<CAPTION>
-----------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------
Fidelity
VIP Equity-
American American Income
Century VP Century VP Original
International Value Class
-----------------------------------------
<S> <C> <C> <C>
---------------------------------------
1999 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ (2,577) $ 637 $ 531
Net realized gain/(loss) from sale of investments ................. 7,075 (9,014) 3,518
Reinvested realized gain distributions ............................ -- 8,647 4,067
Net Change in unrealized appreciation/(depreciation) of investments 211,520 (2,494) (1,189)
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 216,018 (2,224) 6,927
----------- ----------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ...................................... 187,691 57,899 193,907
Transfer on account of other terminations ......................... (389) (10,430) (2,488)
Transfer of policy loans .......................................... (2,111) (3,325) (1,718)
Transfer of cost of insurance and policy fees -- Note 3 ........... (36,461) (10,005) (37,721)
Transfer between investment divisions ............................. 235,492 (44,632) 87,452
Transfers -- other ................................................ 1,009 (893) (13)
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 385,231 (11,386) 239,419
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 601,249 (13,610) 246,346
Net Assets at December 31, 1998 ................................... 56,069 76,078 114,475
----------- ----------- -----------
---------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 657,318 $ 62,468 $ 360,821
---------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
<CAPTION>
-----------------------------------
INVESTMENT DIVISIONS
-----------------------------------
Fidelity Fidelity Fidelity
VIP High VIP II VIP II
Income Contrafund Index 500
Original Original Original
Class Class Class
-----------------------------------
<S> <C> <C> <C>
---------------------------------------
1999 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ 9,748 $ -- $ (8,035)
Net realized gain/(loss) from sale of investments ................. (11,878) -- 54,936
Reinvested realized gain distributions ............................ 392 -- 3,333
Net Change in unrealized appreciation/(depreciation) of investments 8,124 -- 387,799
----------- ------ -----------
Net increase/(decrease) resulting from operations ................. 6,386 -- 438,033
----------- ------ -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ...................................... 90,046 -- 2,439,592
Transfer on account of other terminations ......................... (564) -- (12,948)
Transfer of policy loans .......................................... (2,052) -- (24,709)
Transfer of cost of insurance and policy fees -- Note 3 ........... (18,326) -- (393,386)
Transfer between investment divisions ............................. (54,633) -- 1,326,464
Transfers -- other ................................................ 364 -- (2,368)
----------- ------ -----------
Net increase/(decrease) from policy transactions .................. 14,835 -- 3,332,645
----------- ------ -----------
Total Increase/(Decrease) in Net Assets .............................. 21,221 -- 3,770,678
Net Assets at December 31, 1998 ................................... 109,269 -- 352,163
----------- ------ -----------
--------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ................................... $ 130,490 $ -- $ 4,122,841
--------------------------------------------------------------------------------------------------------------
=========== ====== ===========
</TABLE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------------
Value Line
Strategic AIM V.I. AIM V.I.
Asset Capital Global AIM V.I.
Management Appreciation Utilities Value
--------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------
2000 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ (30,394) $ (3,071) $ (3) $ (12,342)
Net realized gain/(loss) from sale of investments ................. 166,463 23,173 5 102,508
Reinvested realized gain distributions ............................ -- -- -- --
Net change in unrealized appreciation/(depreciation) of investments 314,445 10,078 411 (105,174)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. 450,514 30,180 413 (15,008)
----------- ----------- ----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ...................................... 1,635,043 279,874 4,228 1,326,897
Transfer on account of other terminations ......................... (359,015) (2,717) -- (11,425)
Transfer of policy loans .......................................... (184,356) 2,192 -- (57,439)
Transfer of cost of insurance and policy fees -- Note 3 ........... (434,122) (56,061) (118) (287,855)
Transfer between investment divisions ............................. 46,028 626,274 -- (2,560)
Transfers -- other ................................................ (903) 1,340 (29) 1,566
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 702,675 850,902 4,081 969,184
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 1,153,189 881,082 4,494 954,176
Net Assets at December 31, 1999 ................................... 8,624,293 462,853 -- 3,598,547
----------- ----------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30,2000 ........................................ $ 9,777,482 $ 1,343,935 $ 4,494 $ 4,552,723
-----------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
-----------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------
Fidelity
VIP Equity-
American American Income
Century VP Century VP Original
International Value Class
-----------------------------------------
<S> <C> <C> <C>
---------------------------------------
2000 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ (1,357) $ 668 $ 5,120
Net realized gain/(loss) from sale of investments ................. 15,493 (1,806) (1,974)
Reinvested realized gain distributions ............................ 14,119 2,264 23,506
Net change in unrealized appreciation/(depreciation) of investments (93,199) (4,044) (35,710)
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. (64,944) (2,918) (9,058)
----------- ----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ...................................... 215,404 48,573 121,950
Transfer on account of other terminations ......................... (2,713) 87 (2,979)
Transfer of policy loans .......................................... (8,370) 5,738 (532)
Transfer of cost of insurance and policy fees -- Note 3 ........... (46,547) (7,721) (26,706)
Transfer between investment divisions ............................. 295,051 (2,534) (23,697)
Transfers -- other ................................................ 3,830 (442) (988)
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 456,655 43,701 670,478
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 391,711 40,783 57,990
Net Assets at December 31, 1999 ................................... 657,318 62,468 360,821
----------- ----------- -----------
---------------------------------------------------------------------------------------------------------------------
Net Assets at June 30,2000 ........................................ $ 1,049,029 $ 103,251 $ 418,811
---------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
<CAPTION>
-----------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------
Fidelity Fidelity Fidelity
VIP High VIP II VIP II
Income Contrafund Index 500
Original Original Original
Class Class Class
-----------------------------------------
<S> <C> <C> <C>
---------------------------------------
2000 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ................................... $ 8,674 $ (4) $ 27,312
Net realized gain/(loss) from sale of investments ................. (2,954) 4 69,650
Reinvested realized gain distributions ............................ -- -- 18,827
Net change in unrealized appreciation/(depreciation) of investments (12,359) 379 (163,923)
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................. (6,639) 379 (48,134)
----------- ----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ...................................... 49,355 8,100 1,781,285
Transfer on account of other terminations ......................... (3,527) -- (33,642)
Transfer of policy loans .......................................... (1,230) -- (20,190)
Transfer of cost of insurance and policy fees -- Note 3 ........... (10,067) (401) (369,714)
Transfer between investment divisions ............................. (24,331) 45 582,322
Transfers -- other ................................................ 74 (108) 119,779
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................. 10,274 7,636 2,059,840
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets .............................. 3,635 8,015 2,011,706
Net Assets at December 31, 1999 ................................... 130,490 -- 4,122,841
----------- ----------- -----------
---------------------------------------------------------------------------------------------------------------------
Net Assets at June 30,2000 ........................................ $ 134,125 $ 8,015 $ 6,134,547
---------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
38 & 39
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1999 (Audited) and
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------------------
Fidelity
VIP III
Growth
Opportunities Janus Janus
Original Aggressive Capital Janus
Class Growth Appreciation Growth
---------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------
1999 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ...................... $ (2,186) $ -- $ -- $ --
Net realized gain/(loss) from sale of investments .... 12,936 -- -- --
Reinvested realized gain distributions ............... 6,375 -- -- --
Net Change in unrealized appreciation/(depreciation)
of investments ...................................... 23,602 -- --
----------- ------ ------ ------
Net increase/(decrease) resulting from operations .... 40,727 -- --
----------- ------ ------ ------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ......................... 1,338,771 -- -- --
Transfer on account of other terminations ............ (3,633) -- -- --
Transfer of policy loans ............................. (4,189) -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (215,706) -- -- --
Transfer between investment divisions ................ 204,866 -- -- --
Transfers -- other ................................... (820) -- -- --
----------- ------ ------ ------
Net increase/(decrease) from policy transactions ..... 1,319,289 -- -- --
----------- ------ ------ ------
Total Increase/(Decrease) in Net Assets ................. 1,360,016 -- -- --
Net Assets at December 31, 1998 ...................... 316,286 -- -- --
----------- ------ ------ ------
------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ...................... $ 1,676,302 $ -- $ -- $ --
------------------------------------------------------------------------------------------------------------------------
=========== ====== ====== ======
<CAPTION>
-----------------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------------
Janus MFS
Worldwide MFS Emerging
Growth Bond Growth
-----------------------------------------------
<S> <C> <C> <C>
---------------------------------------
1999 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ...................... $ -- $ 604 $ (5,295)
Net realized gain/(loss) from sale of investments .... -- 31 46,138
Reinvested realized gain distributions ............... -- 64 --
Net Change in unrealized appreciation/(depreciation)
of investments ...................................... -- (1,411) 517,484
------ ----------- -----------
Net increase/(decrease) resulting from operations .... -- (712) 558,327
------ ----------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ......................... -- 33,617 614,914
Transfer on account of other terminations ............ -- (962) (17,418)
Transfer of policy loans ............................. -- -- (32,357)
Transfer of cost of insurance and policy fees -- Note 3 -- (4,805) (123,113)
Transfer between investment divisions ................ -- 142 386,324
Transfers -- other ................................... -- (17) 1,366
------ ----------- -----------
Net increase/(decrease) from policy transactions ..... -- 27,975 829,716
------ ----------- -----------
Total Increase/(Decrease) in Net Assets ................. -- 27,263 1,388,043
Net Assets at December 31, 1998 ...................... -- 22,462 187,550
------ ----------- -----------
--------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ...................... $ -- $ 49,725 $ 1,575,593
--------------------------------------------------------------------------------------------------------------
====== =========== ===========
<CAPTION>
--------------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------------
MFS MFS
Growth with New MFS MFS
Income Discovery Research Total Return
--------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------
1999 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ...................... $ (5,025) $ -- $ -- $ 1,063
Net realized gain/(loss) from sale of investments .... 29,918 -- -- 1,134
Reinvested realized gain distributions ............... 4,518 -- -- 2,927
Net Change in unrealized appreciation/(depreciation)
of investments ...................................... 69,607 -- -- (2,372)
----------- ------ ----------- -----------
Net increase/(decrease) resulting from operations .... 99,018 -- -- 2,752
----------- ------ ----------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ......................... 1,394,529 -- -- 112,985
Transfer on account of other terminations ............ (21,141) -- -- (1,083)
Transfer of policy loans ............................. (16,235) -- -- (1,127)
Transfer of cost of insurance and policy fees -- Note 3 (301,635) -- -- (19,249)
Transfer between investment divisions ................ 42,884 -- -- (587)
Transfers -- other ................................... 859 -- -- (21)
----------- ------ ----------- -----------
Net increase/(decrease) from policy transactions ..... 1,099,261 -- -- 90,918
----------- ------ ----------- -----------
Total Increase/(Decrease) in Net Assets ................. 1,198,279 -- -- 93,670
Net Assets at December 31, 1998 ...................... 788,433 -- -- 44,768
----------- ------ ----------- -----------
-----------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ...................... $ 1,986,712 $ -- $ -- $ 138,438
-----------------------------------------------------------------------------------------------------------------------
=========== ====== =========== ===========
</TABLE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1999 (Audited) and
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------------
Fidelity
VIP III
Growth
Opportunities Janus Janus
Original Aggressive Capital Janus
Class Growth Appreciation Growth
--------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------
2000 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ..................... $ 16,396 $ 15,221 $ 376 $ 230
Net realized gain/(loss) from sale of investments ... (12,381) 14 10 2
Reinvested realized gain distributions .............. 110,492 7,116 50 393
Net change in unrealized appreciation/(depreciation)
of investments ..................................... (161,492) (14,969) (262) (328)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ... (46,985) 7,382 174 297
----------- ----------- ----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ........................ 771,170 30,167 12,427 10,056
Transfer on account of other terminations ........... (21,285) -- -- --
Transfer of policy loans ............................ (10,734) (459) -- --
Transfer of cost of insurance and policy fees -- Note 3 (167,184) (2,264) (444) (1,008)
Transfer between investment divisions ............... (51,875) 274,068 117,463 10,524
Transfers -- other .................................. 355 (1,956) (1,365) (17)
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions .... 520,447 299,556 128,081 19,555
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ................ 473,462 306,938 128,255 19,852
Net Assets at December 31, 1999 ..................... 1,676,302 -- -- --
----------- ----------- ----------- -----------
---------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ......................... $ 2,149,764 $ 306,938 $ 128,255 $ 19,852
---------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
-----------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------
Janus MFS
Worldwide MFS Emerging
Growth Bond Growth
-----------------------------------------
<S> <C> <C> <C>
---------------------------------------
2000 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ..................... $ 388 $ 2,114 $ (6,884)
Net realized gain/(loss) from sale of investments ... 12 (185) 193,566
Reinvested realized gain distributions .............. 1,303 -- 133,517
Net change in unrealized appreciation/(depreciation)
of investments ..................................... 339 (659) (404,870)
----------- ----------- -----------
Net increase/(decrease) resulting from operations ... 2,042 1,270 (84,671)
----------- ----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ........................ 20,342 15,342 985,602
Transfer on account of other terminations ........... -- (233) (41,032)
Transfer of policy loans ............................ (236) -- 29,600
Transfer of cost of insurance and policy fees -- Note 3 (1,175) (2,748) (189,626)
Transfer between investment divisions ............... 113,897 (17,251) 798,398
Transfers -- other .................................. 227 (160) 6,538
----------- ----------- -----------
Net increase/(decrease) from policy transactions .... 133,055 (5,050) 1,589,480
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ................ 135,097 (3,780) 1,504,809
Net Assets at December 31, 1999 ..................... -- 49,725 1,575,593
----------- ----------- -----------
------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ......................... $ 135,097 $ 45,945 $ 3,080,402
------------------------------------------------------------------------------------------------------
=========== =========== ===========
<CAPTION>
--------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------
MFS MFS
Growth with New MFS MFS
Income Discovery Research Total Return
--------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------
2000 Increase/Decrease) from Operations
---------------------------------------
Net investment income/(expense) ......................... $ 3,093 $ -- $ -- $ 3,247
Net realized gain/(loss) from sale of investments ....... 57,592 1 -- (1,482)
Reinvested realized gain distributions .................. 17,179 -- -- 3,573
Net change in unrealized appreciation/(depreciation)
of investments ......................................... (62,626) 90 -- (1,968)
----------- ----------- ------ -----------
Net increase/(decrease) resulting from operations ....... 15,238 91 -- 3,370
----------- ----------- ------ -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ............................ 795,930 4,292 -- 44,563
Transfer on account of other terminations ............... (26,382) -- -- (1,006)
Transfer of policy loans ................................ (23,417) -- -- (922)
Transfer of cost of insurance and policy fees -- Note 3 . (175,317) (302) -- (10,367)
Transfer between investment divisions ................... (299,915) 1,715 -- (9,710)
Transfers -- other ...................................... (10,074) 71 -- 109
----------- ----------- ------ -----------
Net increase/(decrease) from policy transactions ........ 260,825 5,776 -- 22,667
----------- ----------- ------ -----------
Total Increase/(Decrease) in Net Assets .................... 276,063 5,867 -- 26,037
Net Assets at December 31, 1999 ......................... 1,986,712 -- -- 138,438
----------- ----------- ------ -----------
-----------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ............................. $ 2,262,775 $ 5,867 $ -- $ 164,475
-----------------------------------------------------------------------------------------------------------------
=========== =========== ====== ===========
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
40 & 41
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
----------------------
Note 1 -- Organization
----------------------
The Guardian Separate Account K (the Account), a unit investment trust
registered under the Investment Company Act of 1940, as amended, was established
by The Guardian Insurance & Annuity Company, Inc. (GIAC) on September 1, 1995
and commenced operations on October 1, 1995. GIAC is a wholly owned subsidiary
of The Guardian Life Insurance Company of America (Guardian). GIAC issues the
annual premium variable life insurance policies offered through the Account.
GIAC provides for variable accumulations and benefits under the policies by
crediting the net premium payments to one or more investment divisions
established within the Account, or to the Fixed Rate Option (FRO), as selected
by the policyowner. Amounts allocated to the FRO are maintained by GIAC in its
general account. The policyowner also has the ability to transfer his or her
policy value among the investment divisions within the Account.
The Account currently comprises thirty-one investment divisions which
invest in shares of the following mutual funds: The Guardian Stock Fund, Inc.
(GSF), The Guardian VC 500 Index Fund, The Guardian VC Asset Allocation Fund,
The Guardian Bond Fund, Inc. (GBF), The Guardian Cash Fund, Inc. (GCF), Gabelli
Capital Asset Fund, Baillie Gifford International Fund (BGIF), Baillie Gifford
Emerging Markets Fund (BGEMF), The Guardian Small Cap Stock Fund (GSCF), Value
Line Centurion Fund, Inc., Value Line Strategic Asset Management Trust, AIM V.I.
Capital Appreciation Fund, AIM V.I. Global Utilities Fund, AIM V.I. Value Fund,
American Century VP International Fund, American Century VP Value Fund, Fidelity
VIP Equity-Income Original Class, Fidelity VIP High Income Original Class,
Fidelity VIP II Contrafund Original Class, Fidelity VIP II Index 500 Original
Class, Fidelity VIP III Growth Opportunities Original Class, Janus Aggressive
Growth Portfolio, Janus Capital Appreciation Portfolio, Janus Growth Portfolio,
Janus Worldwide Growth Portfolio, MFS Bond Series, MFS Emerging Growth Series,
MFS Growth with Income Series, MFS New Discovery Series, MFS Research Series,
MFS Total Return Series, (collectively, the Funds and individually, a Fund).
However, a policyowner may only invest in up to seven investment divisions,
including the FRO.
GSF, The Guardian VC 500 Index Fund, The Guardian VC Asset Allocation
Fund, GBF, GCF and GSCF each has an investment advisory agreement with Guardian
Investor Services Corporation, a wholly owned subsidiary of GIAC. BGIF and BGEMF
are managed by Guardian Baillie Gifford Ltd., a joint venture company formed by
GIAC and Baillie Gifford Overseas Ltd.
Under applicable insurance law, the assets and liabilities of the Account
are clearly identified and distinguished from the other assets and liabilities
of GIAC. The assets of the Account will not be charged with any liabilities
arising out of any other business conducted by GIAC, but the obligations of the
Account, including the promise to make benefit payments, are obligations of
GIAC.
The changes in net assets maintained in the Account provide the basis for
the periodic determination of benefits under the policies. The net assets may
not be less than the amount required under state insurance laws to provide for
death benefits (without regard to the minimum death benefit guarantee) and other
policy benefits. Additional assets are held in GIAC's general account to cover
the contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
-----------------------------------------
Note 2 -- Significant Accounting Policies
-----------------------------------------
The following is a summary of significant accounting policies of the
Account.
Investments
(a) Net proceeds from the sale of annual premium variable life insurance
policies are invested by the Account's investment divisions in shares of the
corresponding Funds at the net asset value of each Fund's shares. All
distributions made by a Fund are reinvested in shares of the same Fund.
(b) The market value of the investments in the Funds is based on the net
asset value of the respective Funds as of their close of business on the
valuation date.
--------------------------------------------------------------------------------
42
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
(c) Investment transactions are accounted for on the trade date and income
is recorded on the ex-dividend date.
(d) The cost of investments sold is determined on a first in, first out
(FIFO) basis.
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
---------------------------------------------------------------
Note 3 -- Administrative and Mortality and Expense Risk Charges
---------------------------------------------------------------
GIAC assumes mortality and expense risk related to the operations of the
Account. To cover these risks, GIAC deducts a daily charge from the net assets
of the contractholder's account which, on an annual basis, is equal to a rate of
.60% of the policy account value. For the six months ending June 30, 2000 this
amount was $518,486.
Under the terms of the policy, GIAC also deducts certain charges from the
policy account value. These other contractual charges are deducted by redeeming
units of the investment divisions and consist of:
a) a monthly charge for the cost of life insurance, based on the face
value of the policyowner's insurance inforce, as compensation for the
anticipated cost of paying death benefits. For the six months ending June 30,
2000 and the year ended December 31, 1999, deductions for the cost of life
insurance amounted to $5,935,048 and $9,818,037, respectively.
b) policy and administrative fees which vary with the face amount, age of
the insured or the duration of the contract. For the six months ending June 30,
2000 and the year ended December 31, 1999 these fees amounted to $2,776,704 and
$4,831,100, respectively.
c) an annual state premium tax charge as a percentage of the basic
premium. This rate varies by state of jurisdiction. The annual state premium tax
charge for the six months ending June 30, 2000 was $746,141.
Currently, GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
Under current laws, GIAC may incur state and local taxes in several
states. At present, these taxes are not significant. In the event of a material
change in applicable state or local tax laws, GIAC reserves the right to charge
the Account for such taxes, if any, which are attributable to the Account.
-----------------------------------
Note 4 -- Net Assets, June 30, 2000
-----------------------------------
At June 30, 2000, net assets of the Account were as follows:
Accumulation of
Variable Life Insurance
Policyowners' Accounts $128,771,707
Owned by GIAC 49,241,188
------------
$178,012,895
============
The amount retained by GIAC in the Account is comprised of amounts
accruing to GIAC from the operations of the Account and retained therein.
Amounts retained by GIAC in the Account may be transferred by GIAC to its
general account.
--------------------------------------------------------------------------------
43
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account K
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
-----------------------------
Note 5 -- Purchases and Sales
-----------------------------
During the six months ending June 30, 2000 and the year ended December 31,
1999, purchases and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
Purchases Purchases Sales Sales
June 30, December 31, June 30, December 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
The Guardian Stock Fund ............ $15,527,619 $40,197,732 $ 4,399,849 $ 5,716,777
The Guardian VC 500 Index .......... 236 -- -- --
The Guardian VC Asset Allocation ... 505 -- 2 --
The Guardian Bond Fund ............. 734,802 552,238 640,421 167,539
The Guardian Cash Fund ............. 2,538,630 3,523,728 2,675,741 3,039,269
Gabelli Capital Asset Fund ......... 468,141 816,264 79,452 120,592
Baillie Gifford International Fund . 1,085,396 2,323,392 540,244 788,593
Baillie Gifford Emerging
Markets Fund ..................... 288,569 143,195 49,543 19,406
The Guardian Small Cap Stock Fund .. 949,536 1,313,504 426,063 478,918
Value Line Centurion Fund .......... 1,371,118 3,024,194 687,444 1,151,586
Value Line Strategic Asset
Management Trust ................. 1,334,674 3,123,122 631,999 547,573
AIM V.I. Capital Appreciation Fund . 920,260 341,453 69,358 131,925
AIM V.I. Global Utilities Fund ..... 4,133 -- 51 --
AIM V.I. Value Fund ................ 1,505,476 3,167,787 536,292 156,107
American Century VP
International Fund ............... 518,102 428,929 46,384 43,698
American Century VP Value Fund ..... 59,564 94,078 12,714 95,904
Fidelity VIP Equity-Income
Original Class ................... 147,663 289,600 50,870 44,276
Fidelity VIP High Income
Original Class ................... 58,722 106,545 39,439 80,823
Fidelity VIP II Contrafund
Original Class ................... 7,701 -- 65 --
Fidelity VIP II Index 500
Original Class ................... 2,694,760 3,678,236 573,022 337,346
Fidelity VIP III Growth
Opportunities Original Class ..... 841,964 1,458,472 189,238 129,398
Janus Aggressive Growth Portfolio .. 322,043 -- 95 --
Janus Capital Appreciation Portfolio 128,685 -- 165 --
Janus Growth Portfolio ............. 20,246 -- 64 --
Janus Worldwide Growth Portfolio ... 134,965 -- 170 --
MFS Bond Series .................... 17,773 32,771 20,554 3,882
MFS Emerging Growth Series ......... 2,200,342 1,021,280 477,345 191,565
MFS Growth with Income Series ...... 662,192 1,467,895 374,727 363,353
MFS New Discovery Series ........... 5,801 -- 25 --
MFS Research Series ................ -- -- -- --
MFS Total Return Series ............ 55,177 130,430 25,228 35,006
----------- ----------- ----------- -----------
Total ............................ $34,604,795 $67,234,845 $12,546,564 $13,643,536
=========== =========== =========== ===========
</TABLE>
NOTE: In some instances the calculation of total assets may not agree due to
rounding.
--------------------------------------------------------------------------------
44
<PAGE>
--------------------------------------------------------------------------------
This page intentionally left blank.
--------------------------------------------------------------------------------
45
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account M
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------
Guardian Guardian
Guardian VC 500 VC Asset Guardian
Stock Index Allocation Bond
-------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .................................. 136,254 -- -- 8,470
Net asset value per share (NAV) ............................................ 57.02 -- -- 11.81
----------- ------ ------ -----------
Total Assets (Shares x NAV) .............................................. $ 7,769,219 $ -- $ -- $ 100,036
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. ...................... 55,741 -- -- 1,151
----------- ------ ------ -----------
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ..................................................... $ 7,713,478 $ -- $ -- $ 98,885
-----------------------------------------------------------------------------------------------------------------------------------
=========== ====== ====== ===========
Number of units outstanding .................................................. 494,957 -- -- 9,213
Unit value ................................................................... 15.58 -- -- 10.73
FIFO Cost .................................................................... $ 7,220,625 $ -- $ -- $ 100,392
<CAPTION>
----------------------------------------------
INVESTMENT DIVISIONS
----------------------------------------------
Gabelli Baillie
Guardian Capital Gifford
Cash Asset International
----------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .................................. 77,397 19,035 44,075
Net asset value per share (NAV) ............................................ 10.00 18.03 24.61
----------- ----------- -----------
Total Assets (Shares x NAV) .............................................. $ 773,965 $ 343,204 $ 1,084,681
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. ...................... 8,184 3,181 4,831
----------- ----------- -----------
--------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ..................................................... $ 765,781 $ 340,023 $ 1,079,850
--------------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
Number of units outstanding .................................................. 69,463 25,713 75,447
Unit value ................................................................... 11.02 13.22 14.31
FIFO Cost .................................................................... $ 773,965 $ 338,337 $ 1,117,075
<CAPTION>
---------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------
Baillie
Gifford Guardian
Emerging Small Cap Value Line
Markets Stock Centurion
---------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 .................................. 3,877 22,869 18,685
Net asset value per share (NAV) ............................................ 12.16 19.19 37.09
----------- ----------- -----------
Total Assets ( Shares x NAV) ............................................. $ 47,149 $ 438,862 $ 693,019
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. ...................... 299 4,422 4,727
----------- ----------- -----------
-------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ..................................................... $ 46,850 $ 434,440 $ 688,292
-------------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
Number of units outstanding .................................................. 3,782 32,329 43,218
Unit value ................................................................... 12.39 13.44 15.93
FIFO Cost .................................................................... $ 46,085 $ 344,402 $ 633,206
</TABLE>
--------------------------------------------------------------------------------
The Guardian Separate Account M
-------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------
Guardian Guardian
Guardian VC 500 VC Asset Guardian
Stock Index Allocation Bond
-------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ -- $ -- $ -- $ --
Expenses -- Note 3:
Mortality and expense risk charges ....................................... 29,772 -- -- 443
----------- ------ ------ -----------
Net investment income/(expense) ............................................ (29,772) -- -- (443)
----------- ------ ------ -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 39,724 -- -- (1,878)
Reinvested realized gain distributions ................................... -- -- -- --
----------- ------ ------ -----------
Net realized gain/(loss) on investments .................................... 39,724 -- -- (1,878)
Net change in unrealized appreciation/(depreciation) of investments ........ 176,309 -- -- 5,142
----------- ------ ------ -----------
Net realized and unrealized gain/(loss) from investments ..................... 216,033 -- -- 3,264
----------- ------ ------ -----------
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ 186,261 $ -- $ -- $ 2,821
-----------------------------------------------------------------------------------------------------------------------------------
=========== ====== ====== ===========
<CAPTION>
----------------------------------------------
INVESTMENT DIVISIONS
----------------------------------------------
Gabelli Baillie
Guardian Capital Gifford
Cash Asset International
----------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ 17,901 $ -- $ --
Expenses -- Note 3:
Mortality and expense risk charges ....................................... 3,026 1,642 2,975
----------- ----------- -----------
Net investment income/(expense) ............................................ 14,875 (1,642) (2,975)
----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ -- 3,684 16,270
Reinvested realized gain distributions ................................... -- -- --
----------- ----------- -----------
Net realized gain/(loss) on investments .................................... -- 3,684 16,270
Net change in unrealized appreciation/(depreciation) of investments ........ -- 9,920 (93,473)
----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ..................... -- 13,604 (77,203)
----------- ----------- -----------
--------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ 14,875 $ 11,962 $ (80,178)
--------------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
<CAPTION>
---------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------
Baillie
Gifford Guardian
Emerging Small Cap Value Line
Markets Stock Centurion
---------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ..................................................... $ -- $ -- $ --
Expenses -- Note 3:
Mortality and expense risk charges ....................................... 141 1,898 2,837
----------- ----------- -----------
Net investment income/(expense) ............................................ (141) (1,898) (2,837)
----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ........................ 2,434 14,735 21,038
Reinvested realized gain distributions ................................... -- -- --
----------- ----------- -----------
Net realized gain/(loss) on investments .................................... 2,434 14,735 21,038
Net change in unrealized appreciation/(depreciation) of investments ........ (5,358) 23,037 (745)
----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ..................... (2,924) 37,772 20,293
----------- ----------- -----------
-------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .............. $ (3,065) $ 35,874 $ 17,456
-------------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
46 & 47
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account M
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------------------------------
Value Line
Strategic AIM V.I. AIM V.I. American
Asset Capital Global AIM V.I. Century VP
Management Appreciation Utilities Value International
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................ 42,978 7,809 -- 49,563 22,222
Net asset value per share (NAV) .......................... 30.92 38.51 33.41 11.56
---------- ---------- --------- ---------- ----------
Total Assets (Shares x NAV) ............................ $1,328,886 $ 300,722 $ -- $1,655,887 $ 256,882
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. .... 8,881 1,966 -- 7,823 1,551
---------- ---------- --------- ---------- ----------
------------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ................................... $1,320,005 $ 298,756 $ -- $1,648,064 $ 255,331
------------------------------------------------------------------------------------------------------------------------------------
========== ========== ========= ========== ==========
Number of units outstanding ................................ 83,736 16,725 -- 101,485 16,035
Unit value ................................................. 15.76 17.86 16.24 15.92
FIFO Cost .................................................. $1,215,213 $ 253,223 $ -- $1,631,527 $ 237,391
<CAPTION>
---------------------------------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------------------------------
Fidelity Fidelity Fidelity Fidelity
VIP Equity- VIP High VIP II VIP II
American Income Income Contrafund Index 500
Century VP Original Original Original Original
Value Class Class Class Class
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................ 10,948 6,933 4,890 337 14,972
Net asset value per share (NAV) .......................... 5.42 22.91 10.04 25.09 163.91
---------- ---------- ---------- ---------- ----------
Total Assets (Shares x NAV) ............................ $ 59,338 $ 158,841 $ 49,097 $ 8,463 $2,454,085
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. .... 343 1,112 451 2 17,498
---------- ---------- ---------- ---------- ----------
------------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ................................... $ 58,995 $ 157,729 $ 48,646 $ 8,461 $2,436,587
------------------------------------------------------------------------------------------------------------------------------------
========== ========== ========== ========== ==========
Number of units outstanding ................................ 6,607 14,343 5,187 860 169,147
Unit value ................................................. 8.93 11.00 9.38 9.84 14.41
FIFO Cost .................................................. $ 62,722 $ 165,799 $ 53,265 $ 8,553 $2,333,409
</TABLE>
--------------------------------------------------------------------------------
The Guardian Separate Account M
-------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------
Value Line
Strategic AIM V.I. AIM V.I.
Asset Capital Global AIM V.I.
Management Appreciation Utilities Value
--------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................................................. $ -- $ -- $ -- $ --
Expenses -- Note 3:
Mortality and expense risk charges ................................... 5,202 979 -- 5,284
-------- -------- -------- --------
Net investment income/(expense) ........................................ (5,202) (979) -- (5,284)
-------- -------- -------- --------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments .................... 17,604 8,032 -- 20,029
Reinvested realized gain distributions ............................... -- -- -- --
-------- -------- -------- --------
Net realized gain/(loss) on investments ................................ 17,604 8,032 -- 20,029
Net change in unrealized appreciation/(depreciation) of investments .... 37,507 10,343 -- (58,050)
-------- -------- -------- --------
Net realized and unrealized gain/(loss) from investments ................. 55,111 18,375 -- (38,021)
-------- -------- -------- --------
--------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .......... $ 49,909 $ 17,396 $ -- $(43,305)
--------------------------------------------------------------------------------------------------------------------------------
======== ======== ======== ========
<CAPTION>
-----------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------
Fidelity
VIP Equity-
American American Income
Century VP Century VP Original
International Value Class
-----------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................................................. $ 214 $ 443 $ 2,159
Expenses -- Note 3:
Mortality and expense risk charges ................................... 780 139 604
--------- --------- ---------
Net investment income/(expense) ........................................ (566) 304 1,555
--------- --------- ---------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments .................... 6,519 (1,624) (4,370)
Reinvested realized gain distributions ............................... 3,203 1,134 8,133
--------- --------- ---------
Net realized gain/(loss) on investments ................................ 9,722 (490) 3,763
Net change in unrealized appreciation/(depreciation) of investments .... (23,076) (1,218) (7,074)
--------- --------- ---------
Net realized and unrealized gain/(loss) from investments ................. (13,354) (1,708) (3,311)
--------- --------- ---------
------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .......... $ (13,920) $ (1,404) $ (1,756)
------------------------------------------------------------------------------------------------------------------------
========= ========= =========
<CAPTION>
-------------------------------------
INVESTMENT DIVISIONS
-------------------------------------
Fidelity Fidelity Fidelity
VIP High VIP II VIP II
Income Contrafund Index 500
Original Original Original
Class Class Class
-------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ................................................. $ 2,908 $ -- $ 18,348
Expenses -- Note 3:
Mortality and expense risk charges ................................... 190 2 9,141
-------- -------- --------
Net investment income/(expense) ........................................ 2,718 (2) 9,207
-------- -------- --------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments .................... (259) (8) 27,845
Reinvested realized gain distributions ............................... -- -- 8,021
-------- -------- --------
Net realized gain/(loss) on investments ................................ (259) (8) 35,866
Net change in unrealized appreciation/(depreciation) of investments .... (4,967) (90) (45,360)
-------- -------- --------
Net realized and unrealized gain/(loss) from investments ................. (5,226) (98) (9,494)
-------- -------- --------
------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .......... $ (2,508) $ (100) $ (287)
------------------------------------------------------------------------------------------------------------------
======== ======== ========
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
48 & 49
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account M
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------------------------
Fidelity
VIP III
Growth
Opportunities Janus Janus
Original Aggressive Capital Janus
Class Growth Appreciation Growth
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................... 28,006 254 18 139
Net asset value per share (NAV) ............................. 20.61 55.8 31.74 32.89
----------- ----------- ----------- -----------
Total Assets (Shares x NAV) ............................... $ 577,210 $ 14,152 $ 574 $ 4,566
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. ....... 3,639 4 -- 1
----------- ----------- ----------- -----------
----------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ...................................... $ 573,571 $ 14,148 $ 574 $ 4,565
----------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
Number of units outstanding ................................... 48,397 1,396 62 470
Unit value .................................................... 11.85 10.14 9.31 9.70
FIFO Cost ..................................................... $ 603,167 $ 14,676 $ 574 $ 4,816
<CAPTION>
-------------------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------------------
Janus MFS MFS
Worldwide MFS Emerging Growth With
Growth Bond Growth Income
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................... 1,589 404 42,509 27,206
Net asset value per share (NAV) ............................. 48.03 10.64 35.05 21.15
----------- ----------- ----------- -----------
Total Assets (Shares x NAV) ............................... $ 76,311 $ 4,302 $ 1,489,931 $ 575,399
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. ....... 6 38 5,918 4,640
----------- ----------- ----------- -----------
--------------------------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ...................................... $ 76,305 $ 4,264 $ 1,484,013 $ 570,759
--------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
Number of units outstanding ................................... 7,817 406 70,742 46,056
Unit value .................................................... 9.76 10.49 20.98 12.39
FIFO Cost ..................................................... $ 75,827 $ 4,407 $ 1,514,725 $ 557,744
<CAPTION>
--------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------
MFS
New MFS MFS
Discovery Research Total Return
--------------------------------------------
<S> <C> <C> <C>
Assets:
Shares owned in underlying fund -- Note 1 ................... 120 -- 5,466
Net asset value per share (NAV) ............................. 18.36 17.33
----------- -------- -----------
Total Assets (Shares x NAV) ............................... $ 2,195 $ -- $ 94,719
Liabilities:
Due to the Guardian Insurance & Annuity Company, Inc. ....... 2 -- 725
----------- -------- -----------
---------------------------------------------------------------------------------------------------------------
Net Assets -- Note 4 ...................................... $ 2,193 $ -- $ 93,994
---------------------------------------------------------------------------------------------------------------
=========== ======== ===========
Number of units outstanding ................................... 212 -- 8,228
Unit value .................................................... 10.33 11.42
FIFO Cost ..................................................... $ 2,070 $ -- $ 95,389
</TABLE>
--------------------------------------------------------------------------------
The Guardian Separate Account M
-------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------------------------
Fidelity
VIP III
Growth
Opportunities Janus Janus
Original Aggressive Capital Janus
Class Growth Appreciation Growth
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ......................................... $ 5,210 $ 496 $ 2 $ 65
Expenses -- Note 3:
Mortality and expense risk charges ........................... 2,156 4 -- 1
----------- ----------- ----------- -----------
Net investment income/(expense) ................................ 3,054 492 2 64
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............ (10,428) 39 (1) (9)
Reinvested realized gain distributions ....................... 26,426 231 -- 109
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments ........................ 15,998 270 (1) 100
Net change in unrealized appreciation/(depreciation)
of investments ............................................... (33,646) (524) -- (250)
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ......... (17,648) (254) (1) (150)
----------- ----------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .. $ (14,594) $ 238 $ 1 $ (86)
-----------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
-------------------------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------------------------
Janus MFS MFS
Worldwide MFS Emerging Growth With
Growth Bond Growth Income
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ......................................... $ 40 $ 202 $ -- $ 2,073
Expenses -- Note 3:
Mortality and expense risk charges ........................... 6 18 3,966 2,083
----------- ----------- ----------- -----------
Net investment income/(expense) ................................ 34 184 (3,966) (10)
----------- ----------- ----------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............ 12 (39) 33,476 3,724
Reinvested realized gain distributions ....................... 120 -- 68,976 3,763
----------- ----------- ----------- -----------
Net realized gain/(loss) on investments ........................ 132 (39) 102,452 7,487
Net change in unrealized appreciation/(depreciation)
of investments ............................................... 484 (55) (162,880) (4,254)
----------- ----------- ----------- -----------
Net realized and unrealized gain/(loss) from investments ......... 616 (94) (60,428) 3,233
----------- ----------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .. $ 650 $ 90 $ (64,394) $ 3,223
-----------------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
-------------------------------------------
INVESTMENT DIVISIONS
-------------------------------------------
MFS
New MFS MFS
Discovery Research Total Return
-------------------------------------------
<S> <C> <C> <C>
Investment Income
Income:
Reinvested dividends ......................................... $ -- $ -- $ 2,036
Expenses -- Note 3:
Mortality and expense risk charges ........................... 1 -- 402
----------- ---------- -----------
Net investment income/(expense) ............................... (1) -- 1,634
----------- ---------- -----------
Realized and Unrealized Gain/(Loss) from Investments
Realized gain/(loss) from investments:
Net realized gain/(loss) from sale of investments ............ 6 -- (1,059)
Reinvested realized gain distributions ....................... -- -- 1,961
----------- ---------- -----------
Net realized gain/(loss) on investments ........................ 6 -- 902
Net change in unrealized appreciation/(depreciation)
of investments ............................................... 125 -- (577)
----------- ---------- -----------
Net realized and unrealized gain/(loss) from investments ......... 131 -- 325
----------- ---------- -----------
-------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .. $ 130 $ -- $ 1,959
-------------------------------------------------------------------------------------------------------------------
=========== ========== ===========
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
50 & 51
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account M
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1999 (Audited) and
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------
INVESTMENT DIVISIONS
------------------------------------------
Guardian Guardian
Guardian VC 500 VC Asset
Stock Index Allocation
------------------------------------------
<S> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ........................................... $ (13,110) $ -- $ --
Net realized gain/(loss) from sale of investments ......................... 83,399 -- --
Reinvested realized gain distributions .................................... 643,844 -- --
Net Change in unrealized appreciation/(depreciation) of investments ....... 343,343 -- --
----------- ---------- ----------
Net increase/(decrease) resulting from operations ......................... 1,057,476 -- --
----------- ---------- ----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments .............................................. 3,508,724 -- --
Transfer on account of other terminations ................................. (15,032) -- --
Transfer of policy loans .................................................. (5,097) -- --
Transfer of cost of insurance and policy fees -- Note 3 ................... (795,328) -- --
Transfer between investment divisions ..................................... 238,234 -- --
Transfers -- other ........................................................ 8,178 -- --
----------- ---------- ----------
Net increase/(decrease) from policy transactions .......................... 2,939,679 -- --
----------- ---------- ----------
Total Increase/(Decrease) in Net Assets ..................................... 3,997,155 -- --
Net Assets at December 31, 1998 ........................................... 1,263,391 -- --
----------- ---------- ----------
--------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ........................................... $ 5,260,546 $ -- $ --
--------------------------------------------------------------------------------------------------------------------------
=========== ========== ==========
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ........................................... $ (29,772) $ -- $ --
Net realized gain/(loss) from sale of investments ......................... 39,724 -- --
Reinvested realized gain distributions .................................... -- -- --
Net change in unrealized appreciation/(depreciation) of investments ....... 176,309 -- --
----------- ---------- ----------
Net increase/(decrease) resulting from operations ......................... 186,261 -- --
----------- ---------- ----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments .............................................. 2,116,099 -- --
Transfer on account of other terminations ................................. (114,328) -- --
Transfer of policy loans .................................................. (494) -- --
Transfer of cost of insurance and policy fees -- Note 3 ................... (533,898) -- --
Transfer between investment divisions ..................................... 766,451 -- --
Transfers -- other ........................................................ 32,841 -- --
----------- ---------- ----------
Net increase/(decrease) from policy transactions .......................... 2,266,671 -- --
----------- ---------- ----------
Total Increase/(Decrease) in Net Assets ..................................... 2,452,932 -- --
Net Assets at December 31, 1999 ........................................... 5,260,546 -- --
----------- ---------- ----------
--------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ............................................... $ 7,713,478 $ -- $ --
--------------------------------------------------------------------------------------------------------------------------
=========== ========== ==========
<CAPTION>
---------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------
Gabelli
Guardian Guardian Capital
Bond Cash Asset
---------------------------------------------
<S> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ........................................... $ 4,379 $ 16,008 $ (1,162)
Net realized gain/(loss) from sale of investments ......................... (968) -- 8,574
Reinvested realized gain distributions .................................... 217 -- 23,440
Net Change in unrealized appreciation/(depreciation) of investments ....... (4,543) -- (5,366)
----------- ----------- -----------
Net increase/(decrease) resulting from operations ......................... (915) 16,008 25,486
----------- ----------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments .............................................. 149,934 1,429,632 223,295
Transfer on account of other terminations ................................. (218) -- (2,706)
Transfer of policy loans .................................................. -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ................... (15,974) (109,372) (44,004)
Transfer between investment divisions ..................................... (64,902) (1,244,315) 9,896
Transfers -- other ........................................................ (356) (2,341) 732
----------- ----------- -----------
Net increase/(decrease) from policy transactions .......................... 68,484 73,604 187,213
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ..................................... 67,569 89,612 212,699
Net Assets at December 31, 1998 ........................................... 27,203 546,281 74,434
----------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ........................................... $ 94,772 $ 635,893 $ 287,133
-----------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ........................................... $ (443) $ 14,875 $ (1,642)
Net realized gain/(loss) from sale of investments ......................... (1,878) -- 3,684
Reinvested realized gain distributions .................................... -- -- --
Net change in unrealized appreciation/(depreciation) of investments ....... 5,142 -- 9,920
----------- ----------- -----------
Net increase/(decrease) resulting from operations ......................... 2,821 14,875 11,962
----------- ----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments .............................................. 29,671 3,215,960 122,709
Transfer on account of other terminations ................................. (673) (2,321) (7,436)
Transfer of policy loans .................................................. -- -- (410)
Transfer of cost of insurance and policy fees -- Note 3 ................... (8,222) (111,609) (30,243)
Transfer between investment divisions ..................................... (19,471) (2,987,331) (43,645)
Transfers -- other ........................................................ (13) 314 (47)
----------- ----------- -----------
Net increase/(decrease) from policy transactions .......................... 1,292 115,013 40,928
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ..................................... 4,113 129,888 52,890
Net Assets at December 31, 1999 ........................................... 94,772 635,893 287,133
----------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ............................................... $ 98,885 $ 765,781 $ 340,023
-----------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
<CAPTION>
----------------------------------------------------
INVESTMENT DIVISIONS
----------------------------------------------------
Baillie
Baillie Gifford Guardian
Gifford Emerging Small Cap Value Line
International Markets Stock Centurion
----------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) .......................................... $ (800) $ (149) $ (1,785) $ (1,401)
Net realized gain/(loss) from sale of investments ........................ 3,333 1,551 5,236 7,366
Reinvested realized gain distributions ................................... 24,062 -- -- 10,812
Net Change in unrealized appreciation/(depreciation) of investments ...... 60,408 6,392 64,873 53,512
----------- ---------- ---------- -----------
Net increase/(decrease) resulting from operations ........................ 87,003 7,794 68,324 70,289
----------- ---------- ---------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ............................................. 260,696 16,035 171,897 346,483
Transfer on account of other terminations ................................ (445) (60) (1,204) (114)
Transfer of policy loans ................................................. -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 .................. (50,164) (3,999) (51,238) (64,283)
Transfer between investment divisions .................................... 18,717 86 (51,809) 71,591
Transfers -- other ....................................................... 1,469 393 324 (821)
----------- ---------- ---------- -----------
Net increase/(decrease) from policy transactions ......................... 230,273 12,455 67,970 352,856
----------- ---------- ---------- -----------
Total Increase/(Decrease) in Net Assets .................................... 317,276 20,249 136,294 423,145
Net Assets at December 31, 1998 .......................................... 51,714 3,123 116,175 62,098
----------- ---------- ---------- -----------
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 .......................................... $ 368,990 $ 23,372 $ 252,469 $ 485,243
-----------------------------------------------------------------------------------------------------------------------------------
=========== ========== ========== ===========
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) .......................................... $ (2,975) $ (141) $ (1,898) $ (2,837)
Net realized gain/(loss) from sale of investments ........................ 16,270 2,434 14,735 21,038
Reinvested realized gain distributions ................................... -- -- -- --
Net change in unrealized appreciation/(depreciation) of investments ...... (93,473) (5,358) 23,037 (745)
----------- ---------- ---------- -----------
Net increase/(decrease) resulting from operations ........................ (80,178) (3,065) 35,874 17,456
----------- ---------- ---------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ............................................. 262,023 21,530 140,296 299,043
Transfer on account of other terminations ................................ (10,991) (115) (4,550) (9,985)
Transfer of policy loans ................................................. (472) -- -- --
Transfer of cost of insurance and policy fees -- Note 3 .................. (72,253) (7,023) (29,696) (78,854)
Transfer between investment divisions .................................... 611,712 12,339 39,448 (24,388)
Transfers -- other ....................................................... 1,019 (188) 599 (223)
----------- ---------- ---------- -----------
Net increase/(decrease) from policy transactions ......................... 791,038 26,543 146,097 185,593
----------- ---------- ---------- -----------
Total Increase/(Decrease) in Net Assets .................................... 710,860 23,478 181,971 203,049
Net Assets at December 31, 1999 .......................................... 368,990 23,372 252,469 485,243
----------- ---------- ---------- -----------
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 .............................................. $ 1,079,850 $ 46,850 $ 434,440 $ 688,292
-----------------------------------------------------------------------------------------------------------------------------------
=========== ========== ========== ===========
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
52 & 53
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account M
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1999 (Audited) and
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------------------
Value Line
Strategic AIM V.I. AIM V.I.
Asset Capital Global AIM V.I.
Management Appreciation Utilities Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ..................................... $ (133) $ (865) $ -- $ (685)
Net realized gain/(loss) from sale of investments ................... 11,855 2,298 -- 12,426
Reinvested realized gain distributions .............................. 17,574 2,732 -- 9,250
Net change in unrealized appreciation/(depreciation) of investments . 67,484 34,478 -- 78,409
----------- ----------- ---------- -----------
Net increase/(decrease) resulting from operations ................... 96,780 38,643 -- 99,400
----------- ----------- ---------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ........................................ 653,118 46,237 -- 542,294
Transfer on account of other terminations ........................... (1,006) -- -- --
Transfer of policy loans ............................................ -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ............. (101,528) (14,664) -- (74,573)
Transfer between investment divisions ............................... 119,679 13,550 -- 151,091
Transfers -- other .................................................. (2,280) (220) -- (2,660)
----------- ----------- ---------- -----------
Net increase/(decrease) from policy transactions .................... 667,983 44,903 -- 616,152
----------- ----------- ---------- -----------
Total Increase/(Decrease) in Net Assets ............................... 764,763 83,546 -- 715,552
Net Assets at December 31, 1998 ..................................... 139,775 54,325 -- 66,613
----------- ----------- ---------- -----------
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ..................................... $ 904,538 $ 137,871 $ -- $ 782,165
-----------------------------------------------------------------------------------------------------------------------------------
=========== =========== ========== ===========
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ..................................... $ (5,202) $ (979) $ -- $ (5,284)
Net realized gain/(loss) from sale of investments ................... 17,604 8,032 -- 20,029
Reinvested realized gain distributions .............................. -- -- -- --
Net change in unrealized appreciation/(depreciation) of investments . 37,507 10,343 -- (58,050)
----------- ----------- ---------- -----------
Net increase/(decrease) resulting from operations ................... 49,909 17,396 -- (43,305)
----------- ----------- ---------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ........................................ 434,156 131,853 -- 542,616
Transfer on account of other terminations ........................... (8,780) (275) -- (6,332)
Transfer of policy loans ............................................ -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ............. (96,846) (15,723) -- (125,295)
Transfer between investment divisions ............................... 35,209 27,448 -- 495,256
Transfers -- other .................................................. 1,819 186 -- 2,959
----------- ----------- ---------- -----------
Net increase/(decrease) from policy transactions .................... 365,558 143,489 -- 909,204
----------- ----------- ---------- -----------
Total Increase/(Decrease) in Net Assets ............................... 415,467 160,885 -- 865,899
Net Assets at December 31, 1999 ..................................... 904,538 137,871 -- 782,165
----------- ----------- ---------- -----------
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ......................................... $ 1,320,005 $ 298,756 $ -- $ 1,648,064
-----------------------------------------------------------------------------------------------------------------------------------
=========== =========== ========== ===========
<CAPTION>
---------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------
Fidelity
VIP Equity-
American American Income
Century VP Century VP Original
International Value Class
---------------------------------------------
<S> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ..................................... $ (759) $ (23) $ (97)
Net realized gain/(loss) from sale of investments ................... 1,299 (796) 1,218
Reinvested realized gain distributions .............................. -- 1,495 853
Net change in unrealized appreciation/(depreciation) of investments . 42,012 (2,249) (957)
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................... 42,552 (1,573) 1,017
----------- ----------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ........................................ 51,005 23,819 105,932
Transfer on account of other terminations ........................... -- -- --
Transfer of policy loans ............................................ -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ............. (11,422) (7,567) (18,791)
Transfer between investment divisions ............................... 29,683 (119) 13,828
Transfers -- other .................................................. 1,184 227 (157)
...................................................................... ----------- ----------- -----------
Net increase/(decrease) from policy transactions .................... 70,450 16,360 100,812
...................................................................... ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ............................... 113,002 14,787 101,829
Net Assets at December 31, 1998 ..................................... 39,777 15,194 18,865
----------- ----------- -----------
----------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ..................................... $ 152,779 $ 29,981 $ 120,694
----------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ..................................... $ (566) $ 304 $ 1,555
Net realized gain/(loss) from sale of investments ................... 6,519 (1,624) (4,370)
Reinvested realized gain distributions .............................. 3,203 1,134 8,133
Net change in unrealized appreciation/(depreciation) of investments . (23,076) (1,218) (7,074)
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................... (13,920) (1,404) (1,756)
----------- ----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ........................................ 120,574 32,234 75,363
Transfer on account of other terminations ........................... (251) (1,663) (205)
Transfer of policy loans ............................................ -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ............. (16,195) (3,394) (15,926)
Transfer between investment divisions ............................... 12,784 3,705 (19,949)
Transfers -- other .................................................. (440) (464) (492)
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................... 116,472 30,418 38,791
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ............................... 102,552 29,014 37,035
Net Assets at December 31, 1999 ..................................... 152,779 29,981 120,694
----------- ----------- -----------
----------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ......................................... $ 255,331 $ 58,995 $ 157,729
----------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
<CAPTION>
---------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------
Fidelity Fidelity Fidelity
VIP High VIP II VIP II
Income Contrafund Index 500
Original Original Original
Class Class Class
---------------------------------------------
<S> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ..................................... $ 171 $ -- $ (6,410)
Net realized gain/(loss) from sale of investments ................... (60) -- 19,823
Reinvested realized gain distributions .............................. 15 -- 1,168
Net change in unrealized appreciation/(depreciation) of investments . 706 -- 153,470
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................... 832 -- 168,051
----------- ----------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments ........................................ 39,098 -- 1,100,448
Transfer on account of other terminations ........................... -- -- (2,384)
Transfer of policy loans ............................................ -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ............. (5,830) -- (249,134)
Transfer between investment divisions ............................... 14,144 -- 522,634
Transfers -- other .................................................. 348 -- 7,043
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................... 47,760 -- 1,378,607
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ............................... 48,592 -- 1,546,658
Net Assets at December 31, 1998 ..................................... 4,347 -- 165,044
----------- ----------- -----------
--------------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ..................................... $ 52,939 $ -- $ 1,711,702
--------------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ..................................... $ 2,718 $ (2) $ 9,207
Net realized gain/(loss) from sale of investments ................... (259) (8) 27,845
Reinvested realized gain distributions .............................. -- -- 8,021
Net change in unrealized appreciation/(depreciation) of investments . (4,967) (90) (45,360)
----------- ----------- -----------
Net increase/(decrease) resulting from operations ................... (2,508) (100) (287)
----------- ----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments ........................................ 13,083 4,974 830,828
Transfer on account of other terminations ........................... -- -- (35,078)
Transfer of policy loans ............................................ -- -- --
Transfer of cost of insurance and policy fees -- Note 3 ............. (3,369) (95) (214,207)
Transfer between investment divisions ............................... (11,490) 3,574 144,748
Transfers -- other .................................................. (9) 108 (1,119)
----------- ----------- -----------
Net increase/(decrease) from policy transactions .................... (1,785) 8,561 725,172
----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ............................... (4,293) 8,461 724,885
Net Assets at December 31, 1999 ..................................... 52,939 -- 1,711,702
----------- ----------- -----------
--------------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ......................................... $ 48,646 $ 8,461 $ 2,436,587
--------------------------------------------------------------------------------------------------------------------------------
=========== =========== ===========
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
54 & 55
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account M
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1999 (Audited) and
Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------
INVESTMENT DIVISIONS
---------------------------------------------------------------
Fidelity
VIP III
Growth
Opportunities Janus Janus
Original Aggressive Capital Janus
Class Growth Appreciation Growth
---------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ....................... $ (901) $ -- $ -- $ --
Net realized gain/(loss) from sale of investments ..... 2,491 -- -- --
Reinvested realized gain distributions ................ 988 -- -- --
Net Change in unrealized appreciation/(depreciation)
of investments ...................................... 4,979 -- -- --
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ..... 7,557 -- -- --
----------- ----------- ----------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments .......................... 388,588 -- -- --
Transfer on account of other terminations ............. (1,265) -- -- --
Transfer of policy loans .............................. -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (65,770) -- -- --
Transfer between investment divisions ................. 17,609 -- -- --
Transfers -- other .................................... 1,141 -- -- --
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ...... 340,273 -- -- --
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ................. 347,830 -- -- --
Net Assets at December 31, 1998 ....................... 30,975 -- -- --
----------- ----------- ----------- -----------
----------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ....................... $ 378,805 $ -- $ -- $ --
----------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ....................... $ 3,054 $ 492 $ 2 $ 64
Net realized gain/(loss) from sale of investments ..... (10,428) 39 (1) (9)
Reinvested realized gain distributions ................ 26,426 231 -- 109
Net change in unrealized appreciation/(depreciation)
of investments ...................................... (33,646) (524) -- (250)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ..... (14,594) 238 1 (86)
----------- ----------- ----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments .......................... 198,048 9,433 55 1,496
Transfer on account of other terminations ............. (3,725) -- -- --
Transfer of policy loans .............................. -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (52,055) (531) (9) (254)
Transfer between investment divisions ................. 68,373 4,983 561 3,430
Transfers -- other .................................... (1,281) 25 (34) (21)
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ...... 209,360 13,910 573 4,651
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ................. 194,766 14,148 574 4,565
Net Assets at December 31, 1999 ....................... 378,805 -- -- --
----------- ----------- ----------- -----------
----------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ........................... $ 573,571 $ 14,148 $ 574 $ 4,565
----------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
--------------------------------------------------------------
INVESTMENT DIVISIONS
--------------------------------------------------------------
Janus MFS MFS
Worldwide MFS Emerging Growth With
Growth Bond Growth Income
--------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ....................... $ -- $ 28 $ (1,922) $ (1,737)
Net realized gain/(loss) from sale of investments ..... -- (41) 5,800 6,419
Reinvested realized gain distributions ................ -- 3 -- 829
Net Change in unrealized appreciation/(depreciation)
of investments ...................................... -- (50) 135,482 16,112
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ..... -- (60) 139,360 21,623
----------- ----------- ----------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments .......................... -- 3,396 248,229 337,239
Transfer on account of other terminations ............. -- -- -- (1,117)
Transfer of policy loans .............................. -- -- -- --
Transfer of cost of insurance and policy fees -- Note 3 -- (1,499) (41,283) (85,058)
Transfer between investment divisions ................. -- 1,471 77,623 48,057
Transfers -- other .................................... -- (1) 3,380 2,983
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ...... -- 3,367 287,949 301,104
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ................. -- 3,307 427,309 323,727
Net Assets at December 31, 1998 ....................... -- 13 47,055 92,190
----------- ----------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ....................... $ -- $ 3,320 $ 474,364 $ 415,917
-----------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ....................... $ 34 $ 184 $ (3,966) $ (10)
Net realized gain/(loss) from sale of investments ..... 12 (39) 33,476 3,724
Reinvested realized gain distributions ................ 120 -- 68,976 3,763
Net change in unrealized appreciation/(depreciation)
of investments ...................................... 484 (55) (162,880) (4,254)
----------- ----------- ----------- -----------
Net increase/(decrease) resulting from operations ..... 650 90 (64,394) 3,223
----------- ----------- ----------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments .......................... 9,486 1,585 328,035 237,714
Transfer on account of other terminations ............. -- (48) (1,764) (12,570)
Transfer of policy loans .............................. -- -- (624) --
Transfer of cost of insurance and policy fees -- Note 3 (320) (682) (106,891) (45,019)
Transfer between investment divisions ................. 66,397 -- 835,097 (27,652)
Transfers -- other .................................... 92 (1) 20,190 (854)
----------- ----------- ----------- -----------
Net increase/(decrease) from policy transactions ...... 75,655 854 1,074,043 151,619
----------- ----------- ----------- -----------
Total Increase/(Decrease) in Net Assets ................. 76,305 944 1,009,649 154,842
Net Assets at December 31, 1999 ....................... -- 3,320 474,364 415,917
----------- ----------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ........................... $ 76,305 $ 4,264 $ 1,484,013 $ 570,759
-----------------------------------------------------------------------------------------------------------------------------
=========== =========== =========== ===========
<CAPTION>
-----------------------------------------
INVESTMENT DIVISIONS
-----------------------------------------
MFS
New MFS MFS
Discovery Research Total Return
-----------------------------------------
<S> <C> <C> <C>
----------------------------------------
1999 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ....................... $ -- $ -- $ 113
Net realized gain/(loss) from sale of investments ..... -- -- 196
Reinvested realized gain distributions ................ -- -- 785
Net Change in unrealized appreciation/(depreciation)
of investments ...................................... -- -- (443)
----------- -------- -----------
Net increase/(decrease) resulting from operations ..... -- -- 651
----------- -------- -----------
------------------------
1999 Policy Transactions
------------------------
Net policy purchase payments .......................... -- -- 66,482
Transfer on account of other terminations ............. -- -- --
Transfer of policy loans .............................. -- -- --
Transfer of cost of insurance and policy fees -- Note 3 -- -- (7,778)
Transfer between investment divisions ................. -- -- 13,268
Transfers -- other .................................... -- -- 261
----------- -------- -----------
Net increase/(decrease) from policy transactions ...... -- -- 72,233
----------- -------- -----------
Total Increase/(Decrease) in Net Assets ................. -- -- 72,884
Net Assets at December 31, 1998 ....................... -- -- 9,121
----------- -------- -----------
-------------------------------------------------------------------------------------------------------------
Net Assets at December 31, 1999 ....................... $ -- $ -- $ 82,005
-------------------------------------------------------------------------------------------------------------
=========== ======== ===========
----------------------------------------
2000 Increase/(Decrease) from Operations
----------------------------------------
Net investment income/(expense) ....................... $ (1) $ -- $ 1,634
Net realized gain/(loss) from sale of investments ..... 6 -- (1,059)
Reinvested realized gain distributions ................ -- -- 1,961
Net change in unrealized appreciation/(depreciation)
of investments ...................................... 125 -- (577)
----------- -------- -----------
Net increase/(decrease) resulting from operations ..... 130 -- 1,959
----------- -------- -----------
------------------------
2000 Policy Transactions
------------------------
Net policy purchase payments .......................... 2,160 -- 12,686
Transfer on account of other terminations ............. -- -- --
Transfer of policy loans .............................. -- -- --
Transfer of cost of insurance and policy fees -- Note 3 (43) -- (4,898)
Transfer between investment divisions ................. (47) -- 2,456
Transfers -- other .................................... (7) -- (214)
----------- -------- -----------
Net increase/(decrease) from policy transactions ...... 2,063 -- 10,030
----------- -------- -----------
Total Increase/(Decrease) in Net Assets ................. 2,193 -- 11,989
Net Assets at December 31, 1999 ....................... -- -- 82,005
----------- -------- -----------
-------------------------------------------------------------------------------------------------------------
Net Assets at June 30, 2000 ........................... $ 2,193 $ -- $ 93,994
-------------------------------------------------------------------------------------------------------------
=========== ======== ===========
</TABLE>
See notes to financial statements
--------------------------------------------------------------------------------
56 & 57
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account M
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
----------------------
Note 1 -- Organization
----------------------
The Guardian Separate Account M (the Account), a unit investment trust
registered under the Investment Company Act of 1940, as amended, was established
by The Guardian Insurance & Annuity Company, Inc. (GIAC) on January 29, 1998 and
commenced operations on February 6, 1998. GIAC is a wholly owned subsidiary of
The Guardian Life Insurance Company of America (Guardian). GIAC issues the
flexible premium variable universal life insurance policies offered through the
Account. GIAC provides for variable accumulations and benefits under the
policies by crediting the net premium payments to one or more investment
divisions established within the Account, or to the Fixed Rate Option (FRO), as
selected by the policyowner. Amounts allocated to the FRO are maintained by GIAC
in its general account. The policyowner also has the ability to transfer his or
her policy value among the investment divisions within the Account.
The Account currently comprises thirty one investment divisions which
invest in shares of the following mutual funds: The Guardian Stock Fund, Inc.
(GSF), The Guardian VC 500 Index Fund, The Guardian VC Asset Allocation Fund,
The Guardian Bond Fund, Inc. (GBF), The Guardian Cash Fund, Inc. (GCF), Gabelli
Capital Asset Fund, Baillie Gifford International Fund (BGIF), Baillie Gifford
Emerging Markets Fund (BGEMF), The Guardian Small Cap Stock Fund (GSCF), Value
Line Centurion Fund, Inc., Value Line Strategic Asset Management Trust, AIM V.I.
Capital Appreciation Fund, AIM V.I. Global Utilities Fund, AIM V.I. Value Fund,
American Century VP International Fund, American Century VP Value Fund, Fidelity
VIP Equity-Income Original Class, Fidelity VIP High Income Original Class,
Fidelity VIP II Contrafund Original Class, Fidelity VIP II Index 500 Original
Class, Fidelity VIP III Growth Opportunities Original Class, Janus Aggressive
Growth Portfolio, Janus Capital Appreciation Portfolio, Janus Growth Portfolio,
Janus Worldwide Growth Portfolio, MFS Bond Series, MFS Emerging Growth Series,
MFS Growth With Income Series, MFS New Discovery Series, MFS Research Series,
and MFS Total Return Series (collectively, the Funds and individually, a Fund).
However, a policyowner may only invest in up to seven investment divisions,
including the FRO.
GSF, The Guardian VC 500 Index Fund, The Guardian VC Asset Allocation
Fund, GBF, GCF and GSCF each has an investment advisory agreement with Guardian
Investor Services Corporation, a wholly owned subsidiary of GIAC. BGIF and BGEMF
are managed by Guardian Baillie Gifford Ltd., a joint venture company formed by
GIAC and Baillie Gifford Overseas Ltd.
Under applicable insurance law, the assets and liabilities of the Account
are clearly identified and distinguished from the other assets and liabilities
of GIAC. The assets of the Account will not be charged with any liabilities
arising out of any other business conducted by GIAC, but the obligations of the
Account, including the promise to make benefit payments, are obligations of
GIAC.
The changes in net assets maintained in the Account provide the basis for
the periodic determination of benefits under the policies. The net assets may
not be less than the amount required under state insurance laws to provide for
death benefits (without regard to the minimum death benefit guarantee) and other
policy benefits. Additional assets are held in GIAC's general account to cover
the contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
-----------------------------------------
Note 2 -- Significant Accounting Policies
-----------------------------------------
The following is a summary of significant accounting policies of the
Account.
Investments
(a) Net proceeds from the sale of flexible premium variable universal life
insurance policies are invested by the Account's investment divisions in shares
of the corresponding Funds at the net asset value of each Fund's shares. All
distributions made by a Fund are reinvested in shares of the same Fund.
(b The market value of the investments in the Funds
--------------------------------------------------------------------------------
58
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
is based on the net asset value of the respective Funds as of their close of
business on the valuation date.
(c) Investment transactions are accounted for on the trade date and income
is recorded on the ex-dividend date.
(d) The cost of investments sold is determined on a first in, first out
(FIFO) basis.
Federal Income Taxes
The operations of the Account are part of the operations of GIAC and, as
such, are included in the combined tax return of GIAC. GIAC is taxed as a life
insurance company under the Internal Revenue Code of 1986, as amended.
Under current tax law, no federal taxes are payable by GIAC with respect
to the operations of the Account.
---------------------------------------------------------------
Note 3 -- Administrative and Mortality and Expense Risk Charges
---------------------------------------------------------------
GIAC assumes mortality and expense risk related to the operations of the
Account. To cover these risks, GIAC deducts a daily charge from the net assets
of the contractholder's account which, on an annual basis, is equal to a rate of
.90% of the policy account value. This charge is reduced to .60% of the policy
account value after the twentieth policy anniversary. For the six months ended
June 30, 2000, mortality and expense risk deductions amounted to $73,692.
Under the terms of the policy, GIAC also deducts certain charges from the
policy account value. These other contractual charges are deducted by redeeming
units of the investment divisions and consist of:
a) a monthly charge for the cost of life insurance, based on the face
value of the policyowner's insurance inforce, as compensation for the
anticipated cost of paying death benefits. For the six months ended June 30,
2000 and the year ended December 31, 1999, deductions for cost of life insurance
amounted to $956,251 and $968,350, respectively.
b) policy and administrative fees which vary with the face amount, age of
the insured or the duration of the contract. For the six months ended June 30,
2000 and the year ended December 31, 1999, these fees amounted to $617,299 and
$850,909, respectively.
c) an annual state premium tax charge as a percentage of the basic
premium. This rate varies by state of jurisdiction. The annual state premium tax
charge for the six months ended June 30, 2000 was $849,019.
Currently, GIAC makes no charge against the Account for GIAC's federal
income taxes. However, GIAC reserves the right to charge taxes attributable to
the Account in the future.
Under current laws, GIAC may incur state and local taxes in several
states. At present, these taxes are not significant. In the event of a material
change in applicable state or local tax laws, GIAC reserves the right to charge
the Account for such taxes, if any, which are attributable to the Account.
-----------------------------------
Note 4 -- Net Assets, June 30, 2000
-----------------------------------
At June 30, 2000, net assets of the Account were as follows:
Accumulation of
Variable Universal Life Insurance
Policyowners' Accounts $ 9,053,155
Owned by GIAC 11,171,406
-----------
$20,224,561
===========
The amount retained by GIAC in the Account is comprised of amounts
accruing to GIAC from the operations of the Account and retained therein.
Amounts retained by GIAC in the Account may be transferred by GIAC to its
general account.
--------------------------------------------------------------------------------
59
<PAGE>
--------------------------------------------------------------------------------
The Guardian Separate Account M
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
-----------------------------
Note 5 -- Purchases and Sales
-----------------------------
During the six months ended June 30, 2000 and the year ended
December 31, 1999, purchases and sales of shares of the Funds were as follows:
<TABLE>
<CAPTION>
Purchases Purchases Sales Sales
June 30, December 31, June 30, December 31,
2000 1999 2000 1999
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
The Guardian Stock Fund, Inc. ........ $ 2,605,878 $ 4,416,713 $ 345,248 $ 823,321
The Guardian VC 500 Index Fund ....... -- -- -- --
The Guardian VC Asset Allocation Fund -- -- -- --
The Guardian Bond Fund ............... 31,700 158,341 30,409 84,592
The Guardian Cash Fund ............... 3,232,570 1,882,963 3,099,656 1,789,376
Gabelli Capital Asset Fund ........... 137,417 278,403 96,489 67,462
Baillie Gifford International Fund ... 879,838 302,225 88,799 46,907
Baillie Gifford Emerging Markets Fund 34,110 25,459 7,565 13,003
The Guardian Small Cap Stock Fund .... 184,735 171,947 38,639 103,648
Value Line Centurion Fund, Inc. ...... 332,012 404,237 146,418 40,167
Value Line Strategic Asset
Management Trust ................... 480,312 785,612 114,754 96,648
AIM V.I. Capital Appreciation Fund ... 166,101 63,123 22,611 15,399
AIM V.I. Global Utilities Fund ....... -- -- -- --
AIM V.I. Value Fund .................. 1,033,622 699,989 124,417 72,817
American Century VP International Fund 135,880 86,234 15,991 15,784
American Century VP Value Fund ....... 44,239 29,132 12,244 11,119
Fidelity VIP Equity-Income Portfolio
Original Class ..................... 101,494 117,810 52,411 15,758
Fidelity VIP High Income Portfolio
Original Class ..................... 16,430 52,383 15,308 4,190
Fidelity VIP II Contrafund Portfolio
Original Class ..................... 13,329 -- 4,767 --
Fidelity VIP II Index 500 Portfolio
Original Class ..................... 941,342 1,498,930 189,801 117,4343
Fidelity VIP III Growth Opportunities
Portfolio Original Class ........... 352,507 384,338 111,465 42,549
Janus Aggressive Growth Portfolio .... 14,879 -- 241 --
Janus Capital Appreciation Portfolio . 622 -- 46 --
Janus Growth Portfolio ............... 5,023 -- 198 --
Janus Worldwide Growth Portfolio ..... 79,854 -- 4,038 --
MFS Bond Series ...................... 1,764 5,004 709 1,585
MFS Emerging Growth Series ........... 1,229,536 309,251 86,517 21,302
MFS Growth with Income Series ........ 241,784 375,074 84,329 71,450
MFS New Discovery Series ............. 2,144 -- 80 --
MFS Research Series .................. -- -- -- --
MFS Total Return Series .............. 40,022 80,865 25,996 7,423
----------- ----------- ----------- -----------
Total .............................. $12,339,143 $12,128,033 $ 4,719,149 $ 3,461,934
=========== =========== =========== ===========
</TABLE>
--------------------------------------------------------------------------------
60
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--------------------------------------------------------------------------------
61
<PAGE>
--------------------------------------------------------------------------------
The Guardian Stock Fund
-----------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
----------------------
Common Stocks -- 96.5%
----------------------
Shares Value
--------------------------------------------------------------------------------
Appliance and Furniture -- 1.3%
204,500 Corning, Inc. $ 55,189,438
--------------------------------------------------------------------------------
Biotechnology -- 4.2%
96,500 Affymetrix, Inc.* 15,934,563
333,600 Amgen, Inc.* 23,435,400
206,100 Cephalon, Inc.* 12,340,238
285,800 Enzon, Inc.* 12,146,500
78,400 Genentech, Inc.* 13,484,800
196,500 Human Genome Sciences, Inc.* 26,208,188
130,500 Immunex Corp.* 6,451,594
172,100 MedImmune, Inc.* 12,735,400
208,400 Millenium Pharmaceuticals, Inc.* 23,314,750
38,500 Myriad Genetics, Inc.* 5,701,008
131,000 Sepracor, Inc.* 15,801,875
69,100 Vertex Pharmaceuticals, Inc.* 7,281,413
-------------
174,835,729
--------------------------------------------------------------------------------
Broadcasting -- 0.3%
330,700 Infinity Broadcasting Corp.* 12,049,881
--------------------------------------------------------------------------------
Capital Goods-Miscellaneous Technology -- 0.3%
80,500 Amdocs Ltd.* 6,178,375
148,600 Amkor Technology, Inc.* 5,247,437
-------------
11,425,812
--------------------------------------------------------------------------------
Computer Software -- 13.0%
135,100 Adobe Systems, Inc. 17,563,000
114,400 Advent Software, Inc.* 7,378,800
467,400 BEA Systems, Inc.* 23,107,088
204,200 BroadVision, Inc.* 10,375,912
47,800 Check Point Software
Technologies Ltd.* 10,121,650
75,000 Computer Associates Int'l., Inc. 3,839,062
48,000 i2 Technologies, Inc.* 5,004,750
175,200 Inktomi Corp.* 20,717,400
129,500 Mercator Software, Inc.* 8,903,125
200,400 Mercury Interactive Corp.* 19,388,700
110,600 Micromuse, Inc.* 18,302,572
2,106,435 Microsoft Corp.* 168,514,800
1,075,000 Oracle Corp.* 90,367,188
109,000 Rational Software Corp.* 10,130,188
347,500 Saga Systems, Inc.* 4,322,031
182,600 Siebel Systems, Inc.* 29,866,512
274,300 Symantec Corp.* 14,795,056
161,600 TIBCO Software, Inc.* 17,329,075
176,025 VeriSign, Inc.* 31,068,412
94,500 VERITAS Software Corp.* 10,679,977
203,200 Vitria Technology, Inc.* 12,420,600
-------------
534,195,898
--------------------------------------------------------------------------------
Computer Systems -- 10.1%
328,000 Apple Computer, Inc.* 17,179,000
624,400 Compaq Computer Corp. 15,961,225
96,400 Comverse Technology, Inc.* 8,965,200
1,003,700 Dell Computer Corp.* 49,494,956
151,200 Efficient Networks, Inc.* 11,122,650
1,167,600 EMC Corp.* 89,832,225
404,900 Hewlett Packard Co. 50,561,887
796,800 Int'l. Business Machines 87,299,400
73,500 Network Appliance, Inc.* 5,916,750
230,800 NVIDIA Corp.* 14,670,225
60,300 QLogic Corp.* 3,983,569
83,600 SanDisk Corp.* 5,115,275
610,200 Sun Microsystems, Inc.* 55,490,063
-------------
415,592,425
--------------------------------------------------------------------------------
Drugs and Hospitals -- 1.0%
287,000 Andrx Corp.* 18,345,578
222,400 Regeneron Pharmaceuticals, Inc.* 6,630,300
557,800 Tenet Healthcare Corp. 15,060,600
-------------
40,036,478
--------------------------------------------------------------------------------
Electrical Equipment -- 4.9%
177,700 American Power Conversion Corp.* 7,252,381
199,800 Arrow Electronics, Inc.* 6,193,800
132,600 Avnet, Inc. 7,856,550
210,974 Flextronics Int'l. Ltd.* 14,491,277
2,773,500 General Electric Co. 146,995,500
508,800 SCI Systems, Inc.* 19,938,600
-------------
202,728,108
--------------------------------------------------------------------------------
Electronics and Instruments -- 0.5%
107,600 Jabil Circuit, Inc.* 5,339,650
43,500 PerkinElmer, Inc.* 2,805,976
140,400 Sanmina Corp.* 12,004,200
-------------
20,149,826
--------------------------------------------------------------------------------
Electronics-Semiconductors -- 8.7%
380,000 Analog Devices, Inc.* 28,880,000
357,600 Atmel Corp.* 13,186,500
250,200 AVX Corp. 5,738,963
154,200 Burr-Brown Corp.* 13,367,212
92,200 Chartered Semiconductor Mfg. Ltd.* 8,298,000
58,600 Cree, Inc.* 7,823,100
46,600 EPCOS AG* 4,590,100
173,600 Integrated Device Technology, Inc.* 10,394,300
1,203,700 Intel Corp. 160,919,644
39,900 Intersil Hldgs. Corp.* 2,157,094
258,900 Int'l. Rectifier Corp.* 14,498,400
914,200 LSI Logic Corp.* 49,481,075
150,400 LTX Corp.* 5,254,600
157,050 Microchip Technology, Inc.* 9,150,616
132,500 Palm, Inc.* 4,422,187
118,200 STMicroelectronics N.V. 7,586,962
191,744 Taiwan Semiconductor
Mfg. Co. Ltd. ADS* 7,430,080
66,500 Taiwan Semiconductor
Mfg. Co. Ltd. ADS (new)* 2,581,031
-------------
355,759,864
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
62
<PAGE>
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Energy-Miscellaneous -- 0.1%
179,800 Tosco Corp. $ 5,090,588
--------------------------------------------------------------------------------
Entertainment and Leisure -- 2.3%
1,249,200 Walt Disney Co.* 48,484,575
226,300 Time Warner, Inc. 14,568,062
489,863 Viacom, Inc.* 33,402,533
------------
96,455,170
--------------------------------------------------------------------------------
Financial-Banks -- 3.5%
235,000 Bank of New York, Inc.* 10,927,500
1,933,700 Citigroup, Inc. 116,505,425
433,500 Mellon Financial Corp.* 15,795,656
166,765 Premier National Bancorp, Inc. 2,167,945
------------
145,396,526
--------------------------------------------------------------------------------
Financial-Other -- 4.4%
499,800 American Express Co. 26,052,075
240,400 Countrywide Credit Industries, Inc.* 7,287,125
87,332 Legg Mason, Inc. 4,366,600
425,500 Lehman Brothers Hldgs., Inc. 40,236,344
279,600 Merrill Lynch & Co., Inc. 32,154,000
607,800 Morgan Stanley Dean Witter & Co. 50,599,350
539,882 Charles Schwab Corp. 18,153,515
------------
178,849,009
--------------------------------------------------------------------------------
Financial-Thrift -- 0.6%
300,300 Charter One Financial, Inc. 6,906,900
336,700 Golden West Financial Corp.* 13,741,569
200,000 Washington Mutual, Inc.* 5,775,000
------------
26,423,469
--------------------------------------------------------------------------------
Merchandising-Special -- 0.7%
151,500 Best Buy, Inc.* 9,582,375
30,400 Borders Group, Inc.* 473,100
312,000 Starbucks Corp.* 11,914,500
212,800 United Stationers, Inc.* 6,889,400
------------
28,859,375
--------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Staples -- 0.2%
98,500 Omnicom Group, Inc. 8,772,656
--------------------------------------------------------------------------------
Natural Gas-Diversified -- 0.3%
178,900 Coastal Corp. 10,890,538
--------------------------------------------------------------------------------
Oil and Gas Producing -- 1.8%
333,500 Apache Corp. 19,613,969
155,000 Burlington Resources, Inc. 5,928,750
180,000 EOG Resources, Inc.* 6,030,000
266,600 Newfield Exploration Co.* 10,430,725
540,600 Talisman Energy, Inc.* 17,907,375
152,100 Vastar Resources, Inc. 12,491,212
------------
72,402,031
--------------------------------------------------------------------------------
Oil and Gas Services -- 2.7%
150,500 B.J. Svcs. Co.* 9,406,250
186,400 Cooper Cameron Corp.* 12,302,400
219,600 Global Marine, Inc.* 6,189,975
312,500 Halliburton Co. 14,746,094
304,200 Noble Drilling Corp.* 12,529,238
306,400 Santa Fe Int'l. Corp. 10,704,850
289,300 Schlumberger Ltd. 21,589,013
164,575 Transocean Sedco Forex, Inc. 8,794,477
329,400 Weatherford Int'l., Inc.* 13,114,238
------------
109,376,535
--------------------------------------------------------------------------------
Oil-Integrated-Domestic -- 0.3%
178,000 Kerr-McGee Corp. 10,490,875
--------------------------------------------------------------------------------
Oil-Integrated-International -- 2.5%
622,000 Exxon Mobil Corp. 48,827,000
859,200 Royal Dutch Petroleum Co. 52,894,500
------------
101,721,500
--------------------------------------------------------------------------------
Publishing-News -- 0.2%
110,000 Dow Jones & Co., Inc.* 8,057,500
--------------------------------------------------------------------------------
Semiconductors -- 3.5%
517,000 Advanced Micro Devices, Inc.* 39,938,250
512,400 Kemet Corp.* 12,842,025
518,000 Micron Technology, Inc.* 45,616,375
464,700 National Semiconductor Corp.* 26,371,725
555,300 Vishay Intertechnology, Inc.* 21,066,694
------------
145,835,069
--------------------------------------------------------------------------------
Semiconductors-Communications -- 6.8%
275,700 Altera Corp.* 28,104,169
206,200 Applied Micro Circuits Corp.* 20,362,250
92,700 Conexant Systems, Inc.* 4,507,537
547,600 Cypress Semiconductor Corp.* 23,136,100
439,000 Micrel, Inc.* 19,069,062
82,800 PMC-Sierra, Inc.* 14,712,525
52,500 RF Micro Devices, Inc.* 4,600,312
234,900 Semtech Corp.* 17,966,180
831,000 Texas Instruments, Inc. 57,079,313
172,050 Transwitch Corp.* 13,280,109
61,000 TriQuint Semiconductor, Inc.* 5,836,937
144,700 Vitesse Semiconductor Corp.* 10,644,494
737,400 Xilinx, Inc.* 60,881,587
------------
280,180,575
--------------------------------------------------------------------------------
Semiconductors-Equipment -- 3.2%
62,800 Advanced Energy Industries, Inc.* 3,701,275
278,928 Agilent Technologies, Inc.* 20,570,940
417,800 Applied Materials, Inc.* 37,863,125
288,600 Credence Systems Corp.* 15,927,113
239,200 KLA-Tencor Corp.* 14,008,150
313,800 Lam Research Corp.* 11,767,500
96,600 Novellus Systems, Inc.* 5,463,938
299,500 Teradyne, Inc.* 22,013,250
------------
131,315,291
--------------------------------------------------------------------------------
Telecommunications -- 1.8%
213,560 AT & T Corp. 6,753,835
206,400 AT & T Wireless Group* 5,753,400
233,100 McLeodUSA, Inc.* 4,822,256
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
63
<PAGE>
--------------------------------------------------------------------------------
The Guardian Stock Fund
-----------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
Shares Value
--------------------------------------------------------------------------------
887,100 Qwest Comm. Int'l., Inc.* $ 44,077,781
165,700 U S West, Inc. 14,208,775
---------------
75,616,047
--------------------------------------------------------------------------------
Telecommunications-Equipment -- 13.1%
252,800 American Tower Corp.* 10,538,600
121,000 Bookham Technology PLC* 7,169,250
55,000 Brocade Comm. Systems, Inc.* 10,091,641
119,100 Ciena Corp.* 19,852,481
2,334,000 Cisco Systems, Inc.* 148,354,875
77,700 Copper Mountain Networks, Inc.* 6,847,312
222,800 Crown Castle Corp.* 8,132,200
93,700 GlobeSpan, Inc.* 11,438,720
436,390 JDS Uniphase Corp.* 52,312,251
93,000 Juniper Networks, Inc.* 13,537,313
610,400 Nokia Corp. 30,481,850
1,616,700 Nortel Networks Corp. 110,339,775
245,600 Paradyne Networks, Inc.* 7,997,350
102,500 Pinnacle Hldgs., Inc.* 5,535,000
158,100 Proxim, Inc.* 15,646,959
293,000 QUALCOMM, Inc.* 17,580,000
39,700 Redback Networks, Inc.* 7,066,600
398,400 Scientific Atlanta, Inc. 29,680,800
76,700 SDL, Inc.* 21,873,881
132,000 Silicon Image, Inc.* 6,583,500
---------------
541,060,358
--------------------------------------------------------------------------------
Telecommunications-Specialty -- 4.1%
135,300 Advanced Fibre Comm., Inc.* 6,130,781
787,600 Exodus Comm., Inc.* 36,278,825
90,200 InfoSpace, Inc.* 4,983,550
199,300 Level 3 Comm., Inc.* 17,538,400
263,200 Nextel Comm., Inc.* 16,104,550
364,700 Nextel Partners, Inc.* 11,875,544
239,800 NEXTLINK Comm., Inc.* 9,097,412
45,400 Phone.com, Inc.* 2,956,675
261,400 Primus Telecomm. Group, Inc.* 6,502,325
374,600 Sprint Corp. 22,288,700
114,000 Triton PCS Hldgs., Inc.* 6,583,500
45,400 Williams Comm. Group* 1,506,713
208,000 Yahoo, Inc.* 25,766,000
---------------
167,612,975
--------------------------------------------------------------------------------
Utilities-Electric -- 0.1%
59,600 Calpine Corp.* 3,918,700
--------------------------------------------------------------------------------
Total Common Stocks
(Cost $2,569,263,123) 3,970,288,246
--------------------------------------------------------------------------------
------------------------------
Short-term Investments -- 1.5%
------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
$ 29,000,000 Duke Capital Corp
7.00%, due 7/5/00 $ 28,977,444
32,000,000 UBS Fin. (Delaware), Inc.
6.92%, due 7/5/00 31,975,396
--------------------------------------------------------------------------------
Total Short-term Investments
(Cost $60,952,840) 60,952,840
--------------------------------------------------------------------------------
----------------------------
Repurchase Agreement -- 1.7%
----------------------------
$ 69,229,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/00, maturity value $69,266,788
at 6.55% due 7/3/00(1)
(Cost $69,229,000) $ 69,229,000
--------------------------------------------------------------------------------
Total Investments -- 99.7%
(Cost $2,699,444,963) 4,100,470,086
Cash, Receivables and Other
Assets Less Liabilities -- 0.3% 14,174,869
--------------------------------------------------------------------------------
Net Assets -- 100.0% $ 4,114,644,955
--------------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
64
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments, at market (cost $2,699,444,963) $4,100,470,086
Receivable for securities sold 73,037,212
Receivable for fund shares sold 659,333
Dividends receivable 405,781
Interest receivable 12,596
Other assets 4,919
--------------
TOTAL ASSETS 4,174,589,927
--------------
LIABILITIES
Payable for securities purchased 50,622,468
Due to custodian 3,778,518
Payable for fund shares redeemed 3,446,233
Accrued expenses 408,106
Due to affiliates 1,689,647
--------------
TOTAL LIABILITIES 59,944,972
--------------
NET ASSETS $4,114,644,955
==============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 72,161
Additional paid-in capital 2,299,834,003
Undistributed net investment income 511,725
Accumulated net realized gain on investments 413,201,943
Net unrealized appreciation of investments 1,401,025,123
--------------
NET ASSETS $4,114,644,955
==============
Shares Outstanding -- $0.001 par value 72,160,543
--------------
NET ASSET VALUE PER SHARE $ 57.02
==============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Dividends $ 6,710,550
Interest 4,427,569
Less: Foreign tax withheld (86,287)
-------------
Total Income 11,051,832
--------------
Expenses:
Investment advisory fees -- Note B 10,423,998
Custodian fees 188,567
Printing expense 111,216
Legal fees 19,891
Registration fees 13,848
Audit fees 9,883
Directors' fees -- Note B 6,215
Insurance expense 4,036
Loan commitment fees -- Note H 3,428
Other 350
-------------
Total Expenses 10,781,432
-------------
Net Investment Income 270,400
-------------
Realized and Unrealized Gain/(Loss) on
Investments -- Note F
Net realized gain on investments 254,965,042
Net change in unrealized appreciation of
investments (121,770,269)
-------------
Net Realized and Unrealized Gain
on Investments 133,194,773
=============
Net Increase in Net Assets
from Operations $ 133,465,173
=============
See notes to financial statements.
--------------------------------------------------------------------------------
65
<PAGE>
--------------------------------------------------------------------------------
The Guardian Stock Fund
-----------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 2000 1999
(Unaudited) (Audited)
--------------- ---------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 270,400 $ 16,343,111
Net realized gain on investments 254,965,042 635,478,868
Net change in unrealized appreciation of investments (121,770,269) 367,759,722
--------------- ---------------
Net Increase in Net Assets from Operations 133,465,173 1,019,581,701
--------------- ---------------
Dividends and Distributions to Shareholders from:
Net investment income -- (16,388,132)
Net realized gain on investments -- (563,140,777)
--------------- ---------------
Total Dividends and Distributions to Shareholders -- (579,528,909)
--------------- ---------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from capital share transactions -- Note G (193,907,280) 69,838,389
--------------- ---------------
Net Increase/(Decrease) in Net Assets (60,442,107) 509,891,181
Net Assets:
Beginning of period 4,175,087,062 3,665,195,881
--------------- ---------------
End of period* $ 4,114,644,955 $ 4,175,087,062
=============== ===============
* Includes undistributed net investment income of: $ 511,725 $ 241,325
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
66
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 2000 ----------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .......... $55.20 $49.08 $46.05 $38.59 $34.72 $27.33
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income ..................... 0.00 0.24 0.47 0.52 0.53 0.44
Net realized and unrealized
gain on investments ........ 1.82 14.49 8.56 12.97 8.62 9.01
------ ------ ------ ------ ------ ------
Net increase from
investment operations ...... 1.82 14.73 9.03 13.49 9.15 9.45
------ ------ ------ ------ ------ ------
Dividends and Distributions to
Shareholders from:
Net investment income ........ -- (0.24) (0.47) (0.52) (0.54) (0.44)
Net realized gain ............ -- (8.37) (5.53) (5.51) (4.74) (1.62)
------ ------ ------ ------ ------ ------
Total dividends and
distributions .............. -- (8.61) (6.00) (6.03) (5.28) (2.06)
------ ------ ------ ------ ------ ------
Net asset value, end of
period ..................... $57.02 $ $55.20 $49.08 $46.05 $38.59 $34.72
------ ------ ------ ------ ------ ------
Total return* .................. 3.30% 31.17% 19.86% 35.58% 26.90% 34.65%
------ ------ ------ ------ ------ ------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............ $4,114,645 $4,175,087 $3,665,196 $3,222,187 $2,226,728 $1,615,271
Ratio of expenses to
average net assets ......... 0.52%(a) 0.52% 0.52% 0.52% 0.53% 0.53%
Ratio of net investment
income to average net assets 0.01%(a) 0.45% 0.95% 1.17% 1.50% 1.39%
Portfolio turnover
rate ....................... 48% 74% 56% 51% 66% 78%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
--------------------------------------------------------------------------------
67
<PAGE>
--------------------------------------------------------------------------------
The Guardian VC 500 Index Fund
------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
----------------------
Common Stocks -- 98.9%
----------------------
Shares Value
--------------------------------------------------------------------------------
Aerospace and Defense -- 0.8%
21,844 Boeing Co. $ 913,352
5,054 General Dynamics Corp. 264,072
9,956 Lockheed Martin Corp. 247,033
1,747 Northrop Grumman Corp. 115,739
8,510 Raytheon Co. 163,818
4,772 Rockwell Int'l. Corp. 150,318
3,058 TRW, Inc. 132,641
11,944 United Technologies Corp. 703,203
-----------
2,690,176
--------------------------------------------------------------------------------
Air Transportation -- 0.2%
3,724 AMR Corp., DE* 98,453
3,246 Delta Airlines, Inc. 164,126
12,684 Southwest Airlines Co. 240,203
1,797 US Airways Group, Inc.* 70,083
-----------
572,865
--------------------------------------------------------------------------------
Appliance and Furniture -- 0.7%
6,935 Corning, Inc. 1,871,583
4,936 Leggett & Platt, Inc. 81,444
2,123 Maytag Corp. 78,286
1,872 Whirlpool Corp. 87,282
-----------
2,118,595
--------------------------------------------------------------------------------
Automotive -- 0.7%
30,373 Ford Motor Co. 1,306,039
16,098 General Motors Corp. 934,690
-----------
2,240,729
--------------------------------------------------------------------------------
Automotive Parts -- 0.2%
1,907 Cooper Tire & Rubber Co. 21,215
4,137 Dana Corp. 87,653
3,579 Danaher Corp. 176,937
14,207 Delphi Automotive Systems Corp. 206,889
4,471 Genuine Parts Co. 89,420
3,931 Goodyear Tire & Rubber Co. 78,620
1,337 The Pep Boys - Manny, Moe & Jack 8,022
1,471 Snap On, Inc. 39,165
1,557 Timken Co. 28,999
-----------
736,920
--------------------------------------------------------------------------------
Biotechnology -- 0.7%
2,568 Alza Corp.* 151,833
25,686 Amgen, Inc.* 1,804,442
3,778 Biogen, Inc.* 243,681
1,463 Edwards Lifesciences Corp.* 27,065
-----------
2,227,022
--------------------------------------------------------------------------------
Broadcasting -- 0.5%
8,512 Clear Channel Comm., Inc.* 638,400
23,299 Comcast Corp.* 943,610
-----------
1,582,010
--------------------------------------------------------------------------------
Building Materials and Homebuilders -- 0.2%
1,007 Armstrong World Industries, Inc. 15,420
1,493 Centex Corp. 35,086
1,657 Crane Co. 40,286
1,199 Kaufman & Broad Home Corp. 23,755
11,240 Masco Corp. 203,023
1,378 Owens Corning 12,747
1,088 Pulte Corp. 23,528
4,171 Sherwin-Williams Co. 88,373
2,516 Vulcan Materials Co. 107,402
-----------
549,620
--------------------------------------------------------------------------------
Capital Goods-Heavy Duty Trucks -- 0.0%
1,589 Navistar Int'l. Corp., Inc.* 49,358
1,969 PACCAR, Inc. 78,145
1,615 Ryder System, Inc. 30,584
-----------
158,087
--------------------------------------------------------------------------------
Capital Goods-Miscellaneous Technology -- 0.3%
10,033 Minnesota Mng. & Mfg. Co. 827,723
--------------------------------------------------------------------------------
Chemicals-Major -- 0.6%
16,542 Dow Chemical Co. 499,362
26,265 E.I. Dupont de Nemours, Inc. 1,149,094
2,673 Hercules, Inc. 37,589
5,504 Rohm & Haas Co. 189,888
3,366 Union Carbide Corp. 166,617
-----------
2,042,550
--------------------------------------------------------------------------------
Chemicals-Miscellaneous -- 0.5%
5,766 Air Products & Chemicals, Inc. 177,665
2,833 Avery Dennison Corp. 190,165
1,967 Eastman Chemical Co. 93,924
3,258 Ecolab, Inc. 127,266
3,164 Engelhard Corp. 53,986
769 FMC Corp.* 44,602
2,770 B. F. Goodrich Co. 94,353
1,805 W. R. Grace & Co.* 21,886
1,446 Great Lakes Chemical Corp. 45,549
1,724 Mallinckrodt, Inc. 74,886
4,370 PPG Industries, Inc. 193,646
3,997 Praxair, Inc. 149,638
2,100 Sealed Air Corp.* 109,988
2,537 Sigma-Aldrich 74,207
-----------
1,451,761
--------------------------------------------------------------------------------
Coal -- 0.0%
439 Arch Coal, Inc. 3,375
679 Eastern Enterprises 42,777
205 NACCO Industries, Inc. 7,201
-----------
53,353
--------------------------------------------------------------------------------
Computer Software -- 7.2%
2,981 Adobe Systems, Inc. 387,530
1,549 Autodesk, Inc. 53,731
15,848 Automatic Data Processing, Inc. 848,859
6,140 BMC Software, Inc.* 224,014
3,637 Ceridian Corp.* 87,515
4,507 Citrix Systems, Inc.* 85,351
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
68
<PAGE>
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
13,628 Computer Associates Int'l., Inc. $ 697,583
4,208 Computer Sciences Corp.* 314,285
9,064 Compuware Corp.* 94,039
11,838 Electronic Data Systems Corp. 488,318
10,538 First Data Corp. 522,948
132,878 Microsoft Corp.* 10,630,240
8,212 Novell, Inc.* 75,961
70,948 Oracle Corp.* 5,964,066
6,914 Parametric Technology Corp.* 76,054
6,751 PeopleSoft, Inc.* 113,079
5,207 Sabre Hldgs. Corp. 148,399
5,000 Siebel Systems, Inc.* 817,813
10,000 VERITAS Software Corp.* 1,130,156
------------
22,759,941
--------------------------------------------------------------------------------
Computer Systems -- 7.9%
8,130 Apple Computer, Inc.* 425,809
4,583 Cabletron Systems, Inc.* 115,721
42,596 Compaq Computer Corp. 1,088,860
3,840 Comverse Technology, Inc.* 357,120
64,502 Dell Computer Corp.* 3,180,755
51,170 EMC Corp.* 3,936,892
7,959 Gateway, Inc.* 451,673
25,271 Hewlett Packard Co. 3,155,716
19,905 Honeywell, Inc. 670,550
45,327 Int'l. Business Machines 4,966,139
3,212 Lexmark Int'l. Group, Inc.* 216,007
2,428 NCR Corp.* 94,540
7,659 Network Appliance, Inc.* 616,549
9,321 Paychex, Inc. 391,482
6,670 Pitney Bowes, Inc. 266,800
5,428 Seagate Technology* 298,540
4,632 Silicon Graphics, Inc.* 17,370
14,903 Solectron Corp.* 624,063
39,692 Sun Microsystems, Inc.* 3,609,491
7,810 Unisys Corp.* 113,733
16,703 Xerox Corp. 346,587
------------
24,944,397
--------------------------------------------------------------------------------
Conglomerates -- 0.7%
3,769 IKON Office Solutions, Inc. 14,605
2,667 Loews Corp. 160,020
3,740 Textron, Inc. 203,129
42,523 Tyco Int'l. Ltd. 2,014,527
------------
2,392,281
--------------------------------------------------------------------------------
Containers-Metal and Plastic -- 0.0%
761 Ball Corp. 24,495
3,253 Crown Cork & Seal Co., Inc. 48,795
3,775 Owens-Illinois, Inc.* 44,120
------------
117,410
--------------------------------------------------------------------------------
Containers-Paper -- 0.0%
1,315 Bemis Co., Inc. 44,217
4,309 Pactiv Corp.* 33,933
1,404 Temple-Inland, Inc. 58,968
------------
137,118
--------------------------------------------------------------------------------
Cosmetics and Toiletries -- 0.4%
1,401 Alberto-Culver Co. 42,818
6,093 Avon Products, Inc. 271,138
1,451 Bausch & Lomb, Inc. 112,271
26,972 Gillette Co. 942,334
2,643 Int'l. Flavours & Fragrances, Inc. 79,786
------------
1,448,347
--------------------------------------------------------------------------------
Drugs and Hospitals -- 10.4%
38,656 Abbott Laboratories 1,722,608
3,306 Allergan, Inc. 246,297
32,833 American Home Products Corp. 1,928,939
1,287 C. R. Bard, Inc. 61,937
7,316 Baxter Int'l., Inc. 514,406
6,326 Becton Dickinson & Co., Inc. 181,477
2,838 Biomet, Inc.* 109,086
10,428 Boston Scientific Corp.* 228,764
49,881 Bristol-Myers Squibb Corp. 2,905,568
7,729 Guidant Corp.* 382,585
14,164 HCA-The Healthcare Corp. 430,231
9,713 HEALTHSOUTH Corp.* 69,812
4,212 Humana, Inc.* 20,534
34,988 Johnson & Johnson 3,564,402
27,421 Eli Lilly & Co. 2,738,672
2,591 Manor Care, Inc.* 18,137
30,033 Medtronic, Inc. 1,496,019
58,775 Merck & Co., Inc. 4,503,634
156,719 Pfizer, Inc. 7,522,524
31,472 Pharmacia Corp. 1,626,709
36,940 Schering-Plough Corp. 1,865,470
2,116 St. Jude Medical, Inc.* 97,072
7,844 Tenet Healthcare Corp. 211,788
4,268 UnitedHealth Group, Inc. 365,981
2,413 Watson Pharmaceuticals, Inc.* 129,699
1,600 Wellpoint Health Networks, Inc.* 115,900
------------
33,058,251
--------------------------------------------------------------------------------
Electrical Equipment -- 4.6%
2,368 Cooper Industries, Inc. 77,108
1,851 Eaton Corp. 124,017
10,839 Emerson Electric Co. 654,405
251,506 General Electric Co. 13,329,818
4,930 Molex, Inc. 237,256
1,023 Nat'l. Svc. Industries, Inc. 19,949
1,454 Thomas & Betts Corp. 27,808
2,348 W. W. Grainger, Inc. 72,348
------------
14,542,709
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
69
<PAGE>
--------------------------------------------------------------------------------
The Guardian VC 500 Index Fund
------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
Shares Value
--------------------------------------------------------------------------------
Electronics and Instruments -- 0.2%
5,184 PE Corp - PE Biosystems Group $ 341,496
1,201 PerkinElmer, Inc. 79,416
1,188 Tektronix, Inc. 87,912
------------
508,824
--------------------------------------------------------------------------------
Electronics-Semiconductors -- 4.0%
8,795 Analog Devices, Inc.* 668,420
86,010 Intel Corp. 11,498,462
7,479 LSI Logic Corp.* 404,801
3,977 Visteon Corp.* 48,219
------------
12,619,902
--------------------------------------------------------------------------------
Energy-Miscellaneous -- 0.2%
10,932 Williams Cos., Inc. 455,728
3,619 Tosco Corp. 102,463
------------
558,191
--------------------------------------------------------------------------------
Entertainment and Leisure -- 2.5%
2,309 Brunswick Corp. 38,243
15,514 Carnival Corp. 302,523
52,049 Walt Disney Co.* 2,020,152
3,234 Harrah's Entertainment, Inc.* 67,712
7,610 Harley-Davidson, Inc. 292,985
4,872 Hasbro, Inc. 73,385
10,581 Mattel, Inc. 139,537
32,350 Time Warner, Inc. 2,458,600
38,326 Viacom, Inc.* 2,613,354
------------
8,006,491
--------------------------------------------------------------------------------
Financial-Banks -- 5.7%
9,834 AmSouth Bancorporation 154,885
42,928 Bank of America Corp. 1,845,904
18,517 Bank of New York, Inc. 861,040
28,839 Bank One Corp. 766,036
8,736 BB&T Corp. 208,572
31,108 Chase Manhattan Corp. 1,432,912
84,782 Citigroup, Inc. 5,108,115
3,933 Comerica, Inc. 176,493
7,762 Fifth Third Bancorp 490,946
24,837 First Union Corp. 616,268
24,647 Firstar Corp. 519,127
23,022 FleetBoston Financial Corp. 782,748
5,755 Huntington Bancshares, Inc. 91,001
11,248 KeyCorp 198,246
12,790 Mellon Financial Corp. 466,036
15,504 National City Corp. 264,537
5,597 Northern Trust Corp. 364,155
3,222 Old Kent Financial Corp. 86,201
7,393 PNC Bank Corp. 346,547
4,219 SouthTrust Corp. 95,455
4,023 State Street Corp. 426,689
4,395 Summit Bancorp 108,227
8,046 SunTrust Banks, Inc. 367,602
3,546 Union Planters Corp. 99,066
18,944 U.S. Bancorp, Inc. 364,672
5,098 Wachovia Corp. 276,567
41,512 Wells Fargo & Co. 1,608,590
------------
18,126,637
--------------------------------------------------------------------------------
Financial-Other -- 3.9%
33,771 American Express Co. 1,760,313
18,312 Associates First Capital Corp. 408,587
2,852 Bear Stearns Cos., Inc. 118,714
4,958 Capital One Financial Corp. 221,251
2,850 Countrywide Credit Industries, Inc. 86,391
17,480 Federal Home Loan Mortgage Corp. 707,940
25,774 Federal National Mortgage Assn. 1,345,081
6,252 Franklin Resources, Inc. 189,905
4,064 Golden West Financial Corp. 165,862
2,473 H & R Block, Inc. 80,063
11,822 Household Int'l., Inc. 491,352
3,018 Lehman Brothers Hldgs., Inc. 285,390
20,161 MBNA Corp. 546,867
9,321 Merrill Lynch & Co., Inc. 1,071,915
4,354 J. P. Morgan & Co., Inc. 479,484
28,650 Morgan Stanley Dean Witter & Co. 2,385,112
3,589 Paine Webber Group, Inc. 163,299
5,498 Regions Financial Corp. 109,273
30,927 Charles Schwab Corp. 1,039,920
4,000 SLM Hldg. Corp.* 149,750
7,036 Synovus Financial Corp. 124,010
3,009 T. Rowe Price Associates, Inc. 127,882
14,517 Washington Mutual, Inc. 419,178
------------
12,477,539
--------------------------------------------------------------------------------
Food, Beverage and Tobacco -- 4.1%
927 Adolph Coors Co. 56,084
11,700 Anheuser-Busch Cos., Inc. 873,844
15,267 Archer-Daniels-Midland Co. 149,807
7,014 Bestfoods 485,719
1,723 Brown-Forman Corp. 92,611
10,723 Campbell Soup Co. 312,307
62,108 Coca-Cola Co. 3,567,328
10,699 Coca-Cola Enterprises, Inc. 174,527
12,383 ConAgra, Inc. 236,051
4,126 Fortune Brands, Inc. 95,156
7,572 General Mills, Inc. 289,629
8,918 H.J. Heinz Co. 390,162
3,479 Hershey Foods Corp. 168,732
10,194 Kellogg Co. 303,271
22,849 Sara Lee Corp. 441,271
8,201 Nabisco Group Hldgs. Corp. 212,713
36,604 PepsiCo., Inc. 1,626,590
59,497 Philip Morris Cos., Inc. 1,580,389
3,364 The Quaker Oats Co. 252,721
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
70
<PAGE>
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
7,589 Ralston-Purina Group $ 151,306
10,901 Seagrams Ltd. 632,258
14,372 Unilever N.V. 617,996
4,302 UST, Inc. 63,186
2,911 W. M. Wrigley Jr. Co. 233,426
-----------
13,007,084
--------------------------------------------------------------------------------
Footwear -- 0.1%
6,940 NIKE, Inc. 276,299
1,415 Reebok Int'l. Ltd.* 22,552
-----------
298,851
--------------------------------------------------------------------------------
Gold Mining -- 0.1%
9,914 Barrick Gold Corp. 180,311
6,544 Homestake Mining Co.* 44,990
8,188 Placer Dome, Inc. 78,298
-----------
303,599
--------------------------------------------------------------------------------
Household Products -- 1.3%
2,184 Black & Decker Corp. 85,858
5,947 Clorox Co. 266,500
14,649 Colgate-Palmolive Co. 877,109
13,971 Kimberly-Clark Corp. 801,586
7,092 Newell Rubbermaid, Inc. 182,619
33,084 Procter & Gamble Co. 1,894,059
2,249 Stanley Works 53,414
1,450 Tupperware Corp. 31,900
-----------
4,193,045
--------------------------------------------------------------------------------
Insurance -- 3.0%
3,596 Aetna, Inc. 230,818
6,692 AFLAC, Inc. 307,414
20,252 Allstate Corp. 450,607
6,214 American General Corp. 379,054
38,931 American Int'l. Group, Inc. 4,574,392
6,453 Aon Corp. 200,446
4,424 Chubb Corp. 272,076
4,239 Cigna Corp. 396,346
4,127 Cincinnati Financial Corp. 129,743
8,226 Conseco, Inc. 80,203
5,573 Hartford Financial Svcs. Group, Inc. 311,740
2,633 Jefferson-Pilot Corp. 148,600
4,915 Lincoln Nat'l. Corp., Inc. 177,554
6,709 Marsh & McLennan Cos., Inc. 700,671
2,504 MBIA, Inc. 120,660
2,658 MGIC Investment Corp. 120,939
1,838 Progressive Corp. 136,012
3,570 Providian Financial Corp. 321,300
3,269 SAFECO Corp. 64,971
5,714 St. Paul Cos., Inc. 194,990
3,308 Torchmark, Inc. 81,666
6,036 UNUMProvident Corp. 121,097
-----------
9,521,299
--------------------------------------------------------------------------------
Lodging -- 0.2%
17,753 Cendant Corp.* 248,542
9,274 Hilton Hotels Corp. 86,944
6,256 Marriott Int'l., Inc.* 225,607
-----------
561,093
--------------------------------------------------------------------------------
Machinery and Construction Maintenance -- 0.2%
8,940 Caterpillar, Inc. 302,843
1,041 Cummins Engine, Inc. 28,367
5,884 Deere & Co. 217,708
1,912 Fluor Corp. 60,467
2,211 ITT Industries, Inc. 67,159
-----------
676,544
--------------------------------------------------------------------------------
Machinery-Industrial Specialty -- 0.4%
578 Briggs & Stratton Corp. 19,796
5,120 Dover Corp. 207,680
7,556 Illinois Tool Works, Inc. 430,692
4,113 Ingersoll-Rand Co. 165,548
2,148 Johnson Controls, Inc. 110,219
931 Milacron, Inc. 13,500
1,138 Millipore Corp. 85,777
3,118 Pall Corp. 57,683
2,818 Parker-Hannifin Corp. 96,517
3,979 Thermo Electron Corp.* 83,808
-----------
1,271,220
--------------------------------------------------------------------------------
Merchandising-Department Stores -- 0.6%
2,787 Consolidated Stores Corp.* 33,444
2,638 Dillards, Inc. 32,315
8,307 Dollar General Corp. 161,986
5,280 Federated Department Stores, Inc.* 178,200
1,790 Harcourt General, Inc. 97,331
8,198 Kohl's Corp.* 456,014
8,361 May Department Stores Co. 200,664
3,385 Nordstrom, Inc. 81,663
11,018 Target Corp. 639,044
-----------
1,880,661
--------------------------------------------------------------------------------
Merchandising-Drugs -- 0.5%
7,073 Cardinal Health, Inc. 523,402
989 Longs Drug Stores Corp. 21,511
7,085 McKesson HBOC, Inc. 148,342
6,511 Rite Aid Corp.* 42,728
25,302 Walgreen Co. 814,408
-----------
1,550,391
------------ -------------------------------------------------------------------
Merchandising-Food -- 0.6%
10,652 Albertson's, Inc. 354,179
965 Great Atlantic & Pacific Tea Co., Inc. 16,043
20,980 Kroger Co.* 462,871
12,794 Safeway, Inc.* 577,329
3,511 Supervalu, Inc. 66,928
8,298 Sysco Corp. 349,553
3,675 Winn-Dixie Stores, Inc. 52,598
-----------
1,879,501
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
71
<PAGE>
--------------------------------------------------------------------------------
The Guardian VC 500 Index Fund
------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
Shares Value
--------------------------------------------------------------------------------
Merchandising-Mass -- 2.2%
12,243 K Mart Corp.* $ 83,405
6,549 J.C. Penney Co., Inc. 120,747
9,504 SearsRoebuck & Co. 310,068
114,991 Wal-Mart Stores, Inc. 6,626,356
-----------
7,140,576
--------------------------------------------------------------------------------
Merchandising-Special -- 2.0%
3,475 AutoZone, Inc.* 76,450
3,529 Bed, Bath & Beyond, Inc.* 127,926
5,140 Best Buy, Inc.* 325,105
5,113 Circuit City Stores, Inc. 169,688
11,180 Costco Wholesale Corp.* 368,940
9,854 CVS Corp. 394,160
21,396 The GAP, Inc. 668,625
57,894 Home Depot, Inc. 2,891,082
10,804 The Limited, Inc. 233,637
9,614 Lowe's Cos., Inc. 394,775
8,277 Office Depot, Inc.* 51,731
4,861 RadioShack Corp. 230,290
11,813 Staples, Inc.* 181,625
7,797 TJX Cos., Inc. 146,194
6,034 Toys R Us* 87,870
-----------
6,348,098
--------------------------------------------------------------------------------
Metals-Aluminum -- 0.3%
5,511 Alcan Aluminium Ltd. 170,841
21,876 Alcoa, Inc. 634,404
-----------
805,245
--------------------------------------------------------------------------------
Metals-Copper -- 0.1%
4,111 Freeport-McMoran Copper & Gold, Inc.* 38,027
4,827 Inco Ltd.* 74,215
4,215 Newmont Mining Corp. 91,149
2,036 Phelps Dodge Corp. 75,714
-----------
279,105
--------------------------------------------------------------------------------
Metals-Steel -- 0.1%
2,353 Allegheny Technologies, Inc. 42,354
3,298 Bethlehem Steel Corp.* 11,749
2,193 Nucor Corp. 72,780
2,223 USX-U.S. Steel Corp. 41,264
2,244 Worthington Industries, Inc. 23,562
-----------
191,709
--------------------------------------------------------------------------------
Miscellaneous-Capital Goods -- 0.0%
2,891 Quintiles Transnational Corp.* 40,835
--------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Cyclical -- 0.1%
2,529 Energizer Hldgs., Inc.* 46,154
1,500 Sapient Corp.* 160,406
-----------
206,560
--------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Staples -- 0.3%
1,622 American Greetings Corp. 30,818
3,556 Equifax, Inc. 93,345
7,743 IMS Health, Inc. 139,374
7,057 Interpublic Group Cos., Inc. 303,451
4,462 Omnicom Group, Inc. 397,397
1,750 Young & Rubicam, Inc. 100,078
-----------
1,064,463
--------------------------------------------------------------------------------
Natural Gas-Diversified -- 0.5%
5,372 Coastal Corp. 327,020
17,994 Enron Corp. 1,160,613
-----------
1,487,633
--------------------------------------------------------------------------------
Oil and Gas Producing -- 0.3%
3,207 Anadarko Petroleum Corp. 158,145
2,869 Apache Corp. 168,733
5,469 Burlington Resources, Inc. 209,189
6,338 Union Pacific Resources Group 139,436
6,096 Unocal Corp. 201,930
-----------
877,433
--------------------------------------------------------------------------------
Oil and Gas Services-- 0.7%
8,278 Baker Hughes, Inc. 264,896
11,108 Halliburton Co. 524,159
1,497 McDermott Int'l., Inc. 13,192
2,322 Rowan Cos., Inc.* 70,531
13,826 Schlumberger Ltd. 1,031,765
5,255 Transocean Sedco Forex, Inc. 280,814
-----------
2,185,357
--------------------------------------------------------------------------------
Oil-Integrated-Domestic -- 0.7%
2,281 Amerada Hess Corp. 140,852
1,786 Ashland, Inc. 62,622
13,308 BP Amoco PLC ADR 752,734
15,747 Conoco, Inc. 386,786
2,401 Kerr-McGee Corp. 141,509
9,243 Occidental Petroleum Corp. 194,681
6,369 Phillips Petroleum Co. 322,829
2,269 Sunoco, Inc. 66,794
7,813 USX-Marathon Group 195,813
-----------
2,264,620
--------------------------------------------------------------------------------
Oil-Integrated-International -- 3.9%
16,502 Chevron Corp. 1,399,576
86,841 Exxon Mobil Corp. 6,817,018
53,919 Royal Dutch Petroleum Co. 3,319,388
13,907 Texaco, Inc. 740,548
-----------
12,276,530
--------------------------------------------------------------------------------
Paper and Forest Products -- 0.4%
1,437 Boise Cascade Corp. 37,182
5,441 Fort James Corp. 125,823
4,300 Georgia-Pacific Group 112,875
12,122 Int'l. Paper Co. 361,387
2,677 Louisiana-Pacific Corp. 29,112
2,581 Mead Corp. 65,170
728 Potlatch Corp. 24,115
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
72
<PAGE>
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
2,522 Westvaco Corp. $ 62,577
5,905 Weyerhauser Co. 253,915
2,805 Willamette Industries, Inc. 76,436
------------
1,148,592
--------------------------------------------------------------------------------
Photography -- 0.2%
7,936 Eastman Kodak Co. 472,192
1,120 Polaroid Corp. 20,230
------------
492,422
--------------------------------------------------------------------------------
Pollution Control -- 0.1%
4,749 Allied Waste Industries, Inc.* 47,490
15,581 Waste Management, Inc.* 296,039
------------
343,529
--------------------------------------------------------------------------------
Publishing and Printing -- 0.2%
1,846 Deluxe Corp. 43,496
3,179 R. R. Donnelley & Sons Co. 71,726
4,045 Dun & Bradstreet Corp. 115,788
4,931 McGraw-Hill Cos., Inc. 266,274
1,293 Meredith Corp. 43,639
------------
540,923
--------------------------------------------------------------------------------
Publishing-News -- 0.4%
2,259 Dow Jones & Co., Inc. 165,472
7,010 Gannett Co., Inc. 419,286
2,111 Knight-Ridder, Inc. 112,289
4,306 New York Times Co. 170,087
9,745 Tribune Co. 341,075
------------
1,208,209
--------------------------------------------------------------------------------
Railroads -- 0.3%
11,490 Burlington Northern Santa Fe 263,552
5,490 CSX Corp. 116,319
2,779 Kansas City Southern Industries, Inc. 246,463
9,606 Norfolk Southern Corp. 142,889
6,250 Union Pacific Corp. 232,422
------------
1,001,645
--------------------------------------------------------------------------------
Restaurants -- 0.4%
3,222 Darden Restaurants, Inc. 52,357
34,047 McDonald's Corp.* 1,121,423
3,797 Tricon Global Restaurants* 107,265
3,007 Wendy's Int'l., Inc. 53,562
------------
1,334,607
--------------------------------------------------------------------------------
Semiconductors -- 0.5%
3,702 Advanced Micro Devices, Inc.* 285,979
13,590 Micron Technology, Inc.* 1,196,769
4,313 National Semiconductor Corp.* 244,763
------------
1,727,511
--------------------------------------------------------------------------------
Semiconductors-Communications -- 1.7%
5,000 Altera Corp.* 509,688
5,400 Conexant Systems, Inc.* 262,575
8,000 Linear Technology Corp.* 511,500
7,000 Maxim Integrated Products, Inc.* 475,563
40,886 Texas Instruments, Inc. 2,808,357
8,079 Xilinx, Inc.* 667,022
------------
5,234,705
--------------------------------------------------------------------------------
Semiconductors-Connectors -- 0.0%
2,614 Adaptec, Inc.* 59,468
--------------------------------------------------------------------------------
Semiconductors-Equipment -- 1.0%
9,638 Agilent Technologies, Inc.* 710,803
19,245 Applied Materials, Inc.* 1,744,078
4,617 KLA-Tencor Corp.* 270,383
642 MIPS Technologies, Inc.* 24,713
4,300 Teradyne, Inc.* 316,050
------------
3,066,027
--------------------------------------------------------------------------------
Telecommunications -- 5.6%
94,966 AT & T Corp. 3,003,319
39,045 Bell Atlantic Corp.* 1,983,974
47,331 BellSouth Corp. 2,017,484
24,436 GTE Corp. 1,521,141
85,780 SBC Comm., Inc. 3,709,985
21,913 Sprint Corp. (FON Group) 1,117,563
12,706 U S West, Inc. 1,089,539
71,371 WorldCom, Inc.* 3,274,145
------------
17,717,150
--------------------------------------------------------------------------------
Telecommunications-Equipment -- 8.1%
8,608 3Com Corp.* 496,036
7,552 ADC Telecomm., Inc.* 633,424
2,025 Andrew Corp.* 67,964
175,055 Cisco Systems, Inc.* 11,126,933
80,150 Lucent Technologies, Inc. 4,748,887
53,496 Motorola, Inc. 1,554,727
72,604 Nortel Networks Corp. 4,955,223
18,556 QUALCOMM, Inc.* 1,113,360
3,288 Scientific Atlanta, Inc. 244,956
10,115 Tellabs, Inc.* 692,245
------------
25,633,755
--------------------------------------------------------------------------------
Telecommunications-Specialty -- 2.6%
7,894 ALLTEL Corp. 488,935
57,376 America Online, Inc.* 3,026,584
19,606 Global Crossing Ltd.* 515,883
18,329 Nextel Comm., Inc.* 1,121,445
21,672 Sprint PCS* 1,289,484
13,239 Yahoo, Inc.* 1,639,981
------------
8,082,312
--------------------------------------------------------------------------------
Textile-Apparel and Production -- 0.0%
1,487 Liz Claiborne, Inc. 52,417
831 Russell Corp. 16,620
450 Springs Industries, Inc. 14,400
2,970 V.F. Corp. 70,723
------------
154,160
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
73
<PAGE>
--------------------------------------------------------------------------------
The Guardian VC 500 Index Fund
------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
Shares Value
--------------------------------------------------------------------------------
Transportation-Miscellaneous -- 0.1%
7,291 FedEx Corp.* $ 277,058
--------------------------------------------------------------------------------
Utilities-Electric -- 1.7%
10,380 AES Corp.* 473,587
3,450 Ameren Corp. 116,437
8,089 American Electric Power Co., Inc. 239,637
3,512 CenturyTel, Inc. 100,970
3,996 CiNergy Corp. 101,648
2,912 CMS Energy Corp. 64,428
5,558 Consolidated Edison, Inc. 164,656
3,761 Constellation Energy Group, Inc. 122,468
4,013 CP&L Energy, Inc. 128,165
5,984 Dominion Resources, Inc. 256,576
3,647 DTE Energy Co. 111,461
9,195 Duke Energy Co. 518,368
8,731 Edison Int'l. 178,985
6,207 Entergy Corp. 168,753
5,859 FirstEnergy Corp. 136,954
2,469 Florida Progress Corp. 115,734
4,507 FPL Group, Inc. 223,097
3,104 GPU, Inc. 84,002
2,906 New Century Energies, Inc. 87,180
4,709 Niagara Mohawk Hldgs., Inc.* 65,632
3,892 Northern States Power Co. 78,570
4,672 PECO Energy Co. 188,340
9,655 PG&E Corp. 237,754
2,131 Pinnacle West Capital Corp. 72,188
3,613 PPL Corp. 79,260
5,497 Public Svc. Enterprise Group, Inc. 190,334
7,435 Reliant Energy, Inc. 219,797
16,925 Southern Co. 394,564
6,950 TXU Corp. 205,025
5,470 Unicom Corp. 211,621
-------------
5,336,191
--------------------------------------------------------------------------------
Utilities-Gas and Pipeline -- 0.2%
2,043 Columbia Energy Group 134,072
5,741 El Paso Energy Corp. 292,432
1,183 NICOR, Inc. 38,595
777 ONEOK, Inc. 20,153
894 Peoples Energy Corp. 28,943
5,138 Sempra Energy 87,346
-------------
601,541
--------------------------------------------------------------------------------
Total Common Stocks
(Cost $303,609,972) 313,220,705
--------------------------------------------------------------------------------
-----------------------
U.S. Government -- 0.2%
-----------------------
Principal
Amount Value
--------------------------------------------------------------------------------
U.S. Treasury Bill
$ 500,000 5.69% due 7/20/00 $ 498,499
300,000 5.92% due 2/01/01 289,402
--------------------------------------------------------------------------------
Total U.S. Government Securities
(Cost $787,901) 787,901
--------------------------------------------------------------------------------
----------------------------
Repurchase Agreement -- 0.6%
----------------------------
$ 2,002,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/00, maturity value
$2,003,093 at 6.55% due 7/3/00 (1)
(Cost $2,002,000) $ 2,002,000
--------------------------------------------------------------------------------
Total Investments -- 99.7%
(Cost $306,399,873) 316,010,606
Cash, Receivables and Other
Assets Less Liabilities -- 0.3% 850,218
--------------------------------------------------------------------------------
Net Assets -- 100.0% $ 316,860,824
--------------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
------------------------
Bought Futures Contracts
------------------------
Unrealized
Contracts Description Expiration Depreciation
--------------------------------------------------------------------------------
8 S&P 500 Stock Index September, 2000 $ (32,281)
At June 30, 2000 The Guardian VC 500 Index Fund had sufficient cash and/or
securities to cover margin requirements on open futures contracts.
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
74
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments, at market (cost $306,399,873) $316,010,606
Cash 46,178
Receivable for securities sold 607,471
Dividends receivable 258,563
Receivable margin variation 20,200
Receivable for fund shares sold 6,151
Interest receivable 364
Other assets 271
------------
TOTAL ASSETS 316,949,804
------------
LIABILITIES
Accrued expenses 23,890
Due to affiliates 65,090
------------
TOTAL LIABILITIES 88,980
------------
NET ASSETS $316,860,824
============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 29,611
Additional paid-in capital 305,719,812
Undistributed net investment income 1,241,256
Accumulated net realized gain on investments 291,693
Net unrealized appreciation of investments 9,578,452
------------
NET ASSETS $316,860,824
============
Shares Outstanding -- $0.001 par value 29,610,553
------------
NET ASSET VALUE PER SHARE $ 10.70
============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Dividends $ 1,525,541
Interest 76,405
Less: Foreign tax withheld (9,653)
-----------
Total Income 1,592,293
-----------
Expenses:
Investment advisory fees -- Note B 326,417
Custodian fees 63,699
Registration fees 26,811
Audit fees 9,766
Directors' fees -- Note B 6,215
Printing expense 3,405
Legal fees 1,392
Insurance expense 222
Loan commitment fees -- Note H 126
Other 350
-----------
Total Expenses before reimbursement 438,403
Less: Expenses assumed by investment adviser (79,230)
-----------
Net Expenses 359,173
-----------
Net Investment Income 1,233,120
-----------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized loss on investments (60,376)
Net change in unrealized appreciation
of investments (5,173,425)
-----------
Net Realized and Unrealized Loss
on Investments (5,233,801)
-----------
Net Decrease in Net Assets
from Operations $(4,000,681)
===========
See notes to financial statements.
--------------------------------------------------------------------------------
75
<PAGE>
--------------------------------------------------------------------------------
The Guardian VC 500 Index Fund
------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Period from
Ended August 25, 1999+
June 30, 2000 to December 31, 1999
(Unaudited) (Audited)
------------- --------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 1,233,120 $ 698,458
Net realized gain/(loss) on investments (60,376) 384,365
Net change in unrealized appreciation of investments (5,173,425) 14,751,877
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations (4,000,681) 15,834,700
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income -- (690,322)
Net realized gain on investments -- (32,296)
------------- -------------
Total Dividends and Distributions to Shareholders -- (722,618)
------------- -------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note G 103,057,130 202,692,293
------------- -------------
Net Increase in Net Assets 99,056,449 217,804,375
Net Assets:
Beginning of period 217,804,375 --
------------- -------------
End of period* $ 316,860,824 $ 217,804,375
============= =============
+ Commencement of operations
* Includes undistributed net investment income of: $ 1,241,256 $ 8,136
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
76
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months Period From
Ended August 25, 1999* to
June 30, 2000 December 31, 1999
(Unaudited) (Audited)
------------- -----------------
<S> <C> <C>
Net asset value, beginning of period .............................. $10.75 $10.14
------ ------
Income from investment operations:
Net investment income ........................................... 0.04 0.03
Net realized and unrealized gain/(loss) on investments .......... (0.09) 0.61
------ ------
Net increase/(decrease) from investment operations .............. (0.05) 0.64
------ ------
Dividends to Shareholders from:
Net investment income ........................................... -- (0.03)
------ ------
Net asset value, end of period .................................... $10.70 $10.75
------ ------
Total return(a) ................................................... (0.47)% 6.38%
------ ------
Ratios/supplemental data:
Net assets, end of period (000's omitted) ....................... $316,861 $217,804
Gross expense ratio ............................................. 0.34%(b)(c) N/A
Ratio of expenses to average net assets ......................... 0.28%(b)(d) 0.36%(b)
Ratio of expenses after custody credits to average net assets ... N/A 0.29%(b)
Ratio of net investment income to average net assets ............ 0.94%(b) 0.99%(b)
Portfolio turnover rate ......................................... 0% 1%
</TABLE>
* Commencement of investment operations
(a) Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(b) Annualized.
(c) Amount includes expenses subsidized by GISC.
(d) Amount does not include expenses subsidized by GISC.
See notes to financial statements.
--------------------------------------------------------------------------------
77
<PAGE>
--------------------------------------------------------------------------------
The Guardian VC Asset Allocation Fund
-------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
---------------------
Mutual Funds -- 51.9%
---------------------
Shares Value
--------------------------------------------------------------------------------
Equity -- 36.2%
210,598 The Guardian Stock Fund $ 12,008,285
--------------------------------------------------------------------------------
Fixed Income -- 15.7%
439,978 The Guardian Bond Fund 5,196,145
--------------------------------------------------------------------------------
Total Mutual Funds
(Cost $16,115,392) 17,204,430
--------------------------------------------------------------------------------
-----------------------
U.S. Government -- 5.6%
-----------------------
Principal
Amount Value
--------------------------------------------------------------------------------
U.S. Treasury Bill
$ 500,000 5.69% due 7/20/00 $ 498,498
600,000 5.867% due 2/1/01 578,975
800,000 5.925% due 12/28/00 776,300
--------------------------------------------------------------------------------
Total U.S. Government Securities
(Cost $1,853,773) 1,853,773
--------------------------------------------------------------------------------
---------------
Options -- 0.9%
---------------
Number of
Contracts Value
--------------------------------------------------------------------------------
80 U.S. Treasury Bond Futures
Expires August, 2000
Exercise price $94
(Cost $146,401) $ 293,750
--------------------------------------------------------------------------------
------------------------------
Repurchase Agreements -- 41.1%
------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
$6,708,000 Lehman Brothers repurchase agreement,
dated 6/30/00, maturity value
$6,711,678 at 6.58% due 7/3/00(1) $ 6,708,000
6,923,000 State Street Bank & Trust Co.
repurchase agreement, dated 6/30/00,
maturity value $6,926,779 at 6.55%
due 7/3/00(1) 6,923,000
--------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $13,631,000) 13,631,000
--------------------------------------------------------------------------------
Total Investments -- 99.5%
(Cost $31,746,566) 32,982,953
Cash, Receivables and Other Assets
Less Liabilities -- 0.5% 165,800
--------------------------------------------------------------------------------
Net Assets -- 100.0% $ 33,148,753
--------------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
----------------------
Sold Futures Contracts
----------------------
Unrealized
Contracts Description Expiration Appreciation
--------------------------------------------------------------------------------
16 S&P 500 Stock Index September, 2000 $ 64,239
At June 30, 2000 The Guardian VC Asset Allocation Fund had sufficient cash
and/or securities to cover margin requirements on open futures contracts.
See notes to financial statements.
--------------------------------------------------------------------------------
78
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments, at identified cost* $31,746,566
===========
Investments, at market 19,351,953
Repurchase agreements 13,631,000
-----------
TOTAL INVESTMENTS 32,982,953
Cash 215,529
Receivable for fund shares sold 9,574
Interest receivable 2,520
-----------
TOTAL ASSETS 33,210,576
-----------
LIABILITIES
Payable for margin variation 40,400
Accrued expenses 15,237
Due to affiliates 6,186
-----------
TOTAL LIABILITIES 61,823
-----------
NET ASSETS $33,148,753
===========
COMPONENTS OF NET ASSETS
Capital stock, at par $ 2,971
Additional paid-in capital 30,158,309
Undistributed net investment income 322,547
Accumulated net realized gain on investments 1,364,300
Net unrealized appreciation of investments 1,300,626
-----------
NET ASSETS $33,148,753
===========
Shares Outstanding -- $0.001 par value 2,970,951
-----------
NET ASSET VALUE PER SHARE $ 11.16
===========
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Interest $ 387,656
-----------
Expenses:
Investment advisory fees -- Note B 75,219
Custodian fees 12,781
Audit fees 9,020
Directors' fees -- Note B 6,215
Registration fees 2,199
Printing expense 1,204
Legal fees 909
Insurance expense 29
Loan commitment fees -- Note H 15
Other 350
-----------
Gross Expenses 107,941
Expenses assumed by investment adviser(1) (42,115)
-----------
Net Expenses 65,826
-----------
Net Investment Income 321,830
-----------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized gains on investments 38,881
Net change in unrealized appreciation of
investments 910,066
-----------
Net Realized and Unrealized Gain
on Investments 948,947
-----------
Net Increase in Net Assets
from Operations $ 1,270,777
===========
* Includes repurchase agreement.
(1) The Fund does not impose any additional advisory fees for the portion of
the Fund's assets invested in other Guardian Funds.
See notes to financial statements.
--------------------------------------------------------------------------------
79
<PAGE>
--------------------------------------------------------------------------------
The Guardian VC Asset Allocation Fund
-------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Period from
Ended September 15, 1999+
June 30, 2000 to December 31, 1999
(Unaudited) (Audited)
------------- --------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 321,830 $ 308,443
Net realized gain on investments 38,881 1,325,419
Net change in unrealized appreciation of investments 910,066 390,560
------------ ------------
Net Increase in Net Assets from Operations 1,270,777 2,024,422
------------ ------------
Dividends to Shareholders from:
Net investment income -- (307,726)
------------ ------------
From Capital Share Transactions:
Net increase in net assets from capital share transactions -- Note G 4,128,220 26,033,060
------------ ------------
Net Increase in Net Assets 5,398,997 27,749,756
Net Assets:
Beginning of period 27,749,756 --
------------ ------------
End of period* $ 33,148,753 $ 27,749,756
============ ============
+ Commencement of operations
* Includes undistributed net investment income of: $ 322,547 $ 717
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
80
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months Period From
Ended September 15, 1999* to
June 30, 2000 December 31, 1999
(Unaudited) (Audited)
------------- ----------------------
<S> <C> <C>
Net asset value, beginning of period ................. $10.68 $ 9.94
------ ------
Income from investment operations:
Net investment income .............................. 0.11 0.12
Net realized and unrealized gain on investments .... 0.37 0.74
------ ------
Net increase from investment operations ............ 0.48 0.86
------ ------
Dividends to Shareholders from:
Net investment income .............................. -- (0.12)
------ ------
Net asset value, end of period ....................... $11.16 $10.68
------ ------
Total return(a) ...................................... 4.49% 8.67%
------ ------
Ratios/supplemental data:
Net assets, end of period (000's omitted) .......... $33,149 $27,750
Gross expense ratio ................................ 0.72%(b)(c) 0.98%(b)(c)
Ratio of expenses to average net assets ............ 0.44%(b)(d) 0.67%(b)(d)
Ratio of net investment income to average net assets 2.14%(b) 4.09%(b)
Portfolio turnover rate ............................ 0% 0%
</TABLE>
* Commencement of investment operations.
(a) Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(b) Annualized.
(c) Amounts include expenses of the underlying funds.
(d) Amounts do not include expenses of the underlying funds.
See notes to financial statements.
--------------------------------------------------------------------------------
81
<PAGE>
--------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
----------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
--------------------
Asset Backed -- 5.0%
--------------------
Principal
Amount Value
--------------------------------------------------------------------------------
$ 5,000,000 Advanta Mortgage Loan Tr.
1997-2 A5
7.25% due 6/25/27 $ 4,902,000
2,191,140 Amresco 1997-1 M1F
7.42% due 3/25/27 2,123,937
3,700,000 Centex Home Equity Loan Tr.
1999-2 A4
6.60% due 1/25/28 3,469,564
3,600,000 Contimortgage Home Equity Loan Tr.
1999-1 A3
6.17% due 5/25/21 3,417,084
3,600,000 Countrywide 2000-1 AF3
7.83% due 7/25/25 3,606,732
--------------------------------------------------------------------------------
Total Asset Backed
(Cost $17,860,355) 17,519,317
--------------------------------------------------------------------------------
----------------------------------
Commercial Mortgage Backed -- 3.0%
----------------------------------
$ 3,600,000 Prudential Securities Secd. Fin. Corp.
2000-Cl A1
7.617% due 6/15/09 $ 3,622,640
6,943,521 TIAA Retail Comm'l. Mortgage Tr.
1999-Cl A
7.17% due 10/15/07+ 6,852,006
--------------------------------------------------------------------------------
Total Commercial Mortgage Backed
(Cost $10,395,723) 10,474,646
--------------------------------------------------------------------------------
------------------------
Corporate Bonds -- 25.6%
------------------------
Aerospace and Defense -- 1.0%
$ 3,600,000 Raytheon Co.
8.20% due 3/1/06+ $ 3,655,876
--------------------------------------------------------------------------------
Electronics and Instruments -- 2.1%
7,200,000 Limestone Electronics Tr.
8.625% due 3/15/03+ 7,258,428
--------------------------------------------------------------------------------
Energy -- 1.9%
3,000,000 Occidental Petroleum Corp.
7.65% due 2/15/06 2,983,119
3,500,000 Phillips Petroleum Co.
8.75% due 5/25/10 3,705,996
------------
6,689,115
--------------------------------------------------------------------------------
Entertainment-Cable-Media -- 3.7%
2,500,000 Cox Comm., Inc.
7.875% due 8/15/09 2,494,842
3,600,000 CSC Hldgs., Inc.
8.125% due 7/15/09 3,503,412
3,650,000 Time Warner Entertainment Co.
7.25% due 9/1/08 3,525,436
3,650,000 Time Warner, Inc.
7.48% due 1/15/08 3,565,492
------------
13,089,182
--------------------------------------------------------------------------------
Financial-Other -- 1.0%
3,600,000 Lehman Brothers Hldgs., Inc.
6.50% due 10/1/02 3,512,736
--------------------------------------------------------------------------------
Machinery-Industrial Specialty -- 1.0%
3,500,000 Mallinckrodt, Inc.
6.30% due 3/15/11+ 3,453,111
--------------------------------------------------------------------------------
Merchandising-Department Stores -- 1.8%
Saks, Inc.
3,600,000 7.00% due 7/15/04 3,231,457
3,600,000 7.25% due 12/1/04 3,234,287
------------
6,465,744
--------------------------------------------------------------------------------
Merchandising-Food -- 1.0%
3,500,000 Aramark Svcs., Inc.
6.75% due 8/1/04 3,317,230
--------------------------------------------------------------------------------
Merchandising-Mass -- 1.0%
3,400,000 Wal-Mart Stores, Inc.
8.75% due 12/29/06 3,442,568
--------------------------------------------------------------------------------
Miscellaneous-Capital Goods -- 1.4%
5,000,000 Ikon Capital, Inc.
6.73% due 6/15/01 4,913,770
--------------------------------------------------------------------------------
Oil-Integrated-International -- 2.0%
7,200,000 YPF Sociedad Anonima
7.25% due 3/15/03 6,984,000
--------------------------------------------------------------------------------
Paper and Forest Products -- 1.0%
3,500,000 Int'l. Paper Co.
8.125% due 7/8/05+ 3,530,877
--------------------------------------------------------------------------------
Telecommunications -- 5.7%
Deutsche Telekom Int'l. Finance BV
3,600,000 8.00% due 6/15/10 3,636,828
3,600,000 8.25% due 6/15/30 3,656,092
GTE Corp.
3,500,000 6.94% due 4/15/28 3,090,986
3,600,000 7.51% due 4/1/09 3,544,488
3,600,000 Vodafone Airtouch PLC
7.75% due 2/15/10+ 3,569,227
2,400,000 Williams Comm. Group
10.875% due 10/1/09 2,346,000
------------
19,843,621
--------------------------------------------------------------------------------
See notes to financial statements.
+ Rule 144A restricted security.
--------------------------------------------------------------------------------
82
<PAGE>
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
Waste Services -- 1.0%
$ 3,500,000 USA Waste Svcs., Inc.
6.125% due 7/15/01 $ 3,389,036
--------------------------------------------------------------------------------
Total Corporate Bonds
(Cost $90,384,589) 89,545,294
--------------------------------------------------------------------------------
------------------------------------------
Collateralized Mortgage Obligation -- 4.5%
------------------------------------------
$ 5,648,076 GE Capital Mortgage Svcs., Inc.
1996-3 A7 7.00% due 3/25/26 $ 5,360,364
6,813,148 Norwest Asset Securities
2000-2 A1 7.50% due 4/25/30 6,753,601
3,811,266 PNC Mortgage Securities Corp.
1998-10 A17 6.50%
due 12/25/28 3,658,396
--------------------------------------------------------------------------------
Total Collateralized Mortgage
Obligations
(Cost $16,055,544) 15,772,361
--------------------------------------------------------------------------------
-------------------------------
Mortgage Pass-Throughs -- 38.9%
-------------------------------
FHLMC
$ 12,100,000 7.00%, (30 yr. TBA)(a) $ 11,684,062
1,914,452 6.50% due 6/1/29 1,807,664
967,147 6.50% due 7/1/29 913,200
1,678,100 6.50% due 9/1/29 1,584,496
637,468 7.00% due 8/1/08 629,500
FNMA
5,500,000 6.00%, (15 yr. TBA)(a) 5,200,938
1,000,000 6.50%, (15 yr. TBA)(a) 963,750
5,500,000 7.00%, (15 yr. TBA)(a) 5,393,438
24,900,000 7.00%, (30 yr. TBA)(a) 24,020,731
23,450,000 7.50%, (30 yr. TBA)(a) 23,098,250
16,500,000 8.00%, (30 yr. TBA)(a) 16,561,875
9,000,000 8.50%, (30 yr. TBA)(a) 9,160,308
4,176,707 6.50% due 11/1/28 3,941,141
535,674 8.00% due 6/1/08 540,136
4,512 8.25% due 1/1/09 4,613
228,765 8.50% due 8/1/09 232,574
GNMA
25,200,000 8.00%, (30 yr. TBA)(a) 25,459,862
940,719 6.50% due 1/15/29 892,817
987,243 6.50% due 2/15/29 936,973
530,792 6.50% due 3/15/29 503,764
2,428,512 6.50% due 4/15/29 2,304,851
152,273 6.50% due 7/15/29 144,518
--------------------------------------------------------------------------------
Total Mortgage Pass-Throughs
(Cost $135,722,452) 135,979,461
--------------------------------------------------------------------------------
----------------------
Sovereign Debt -- 1.0%
----------------------
$ 3,600,000 Quebec Province CDA
7.50% due 9/15/29
(Cost $3,465,567) $ 3,530,117
--------------------------------------------------------------------------------
-------------------------------------
U.S. Government and Agencies -- 19.1%
-------------------------------------
FNMA
$ 12,625,000 7.25% due 1/15/10 $ 12,728,071
3,500,000 7.25% due 5/15/30 3,563,322
U.S. Treasury Bonds
1,570,000 5.25% due 2/15/29 1,392,885
4,000,000 6.00% due 2/15/26 3,910,000
2,175,000 6.125% due 11/15/27 2,168,203
4,850,000 6.125% due 8/15/29 4,901,531
3,950,000 6.25% due 5/15/30 4,146,268
5,500,000 6.625% due 2/15/27 5,831,721
4,000,000 9.25% due 2/15/16 5,182,500
U.S. Treasury Notes
3,500,000 4.25% due 11/15/03 3,283,438
2,450,000 5.50% due 2/15/08 2,345,875
1,800,000 6.00% due 8/15/09 1,785,375
1,900,000 6.50% due 8/15/05 1,920,187
6,175,000 6.50% due 2/15/10 6,385,339
7,200,000 6.75% due 5/15/05 7,368,754
--------------------------------------------------------------------------------
Total U.S. Government and Agencies
(Cost $65,760,203) 66,913,469
--------------------------------------------------------------------------------
See notes to financial statements.
--------------------------------------------------------------------------------
83
<PAGE>
--------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
----------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
-------------------------
Commercial Paper -- 34.9%
-------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
Building Materials and Homebuilders -- 4.0%
$ 14,000,000 Martin Marietta Materials, Inc.
6.57% due 7/17/00(a) $ 13,959,120
--------------------------------------------------------------------------------
Computer Systems -- 2.1%
7,475,000 Xerox Corp.
6.72% due 7/20/00(a) 7,448,489
--------------------------------------------------------------------------------
Conglomerates -- 2.8%
9,600,000 Invensys PLC
6.63% due 7/17/00(a) 9,571,712
--------------------------------------------------------------------------------
Financial-Banks -- 4.0%
14,000,000 Baus Funding LLC
6.52% due 7/17/00(a) 13,959,431
--------------------------------------------------------------------------------
Financial-Other -- 14.3%
11,754,000 Amsterdam Funding Corp.
6.59% due 7/24/00(a) 11,704,512
14,000,000 Duke Capital Corp.
6.59% due 7/24/00(a) 13,941,056
4,200,000 General Electric Capital Corp.
6.54% due 7/20/00(a) 4,185,503
6,450,000 John Deere Capital Corp.
6.54% due 7/17/00(a) 6,431,252
14,000,000 Textron Fin. Corp.
6.57% due 7/17/00(a) 13,959,120
-------------
50,221,443
--------------------------------------------------------------------------------
Merchandising-Department Stores -- 4.0%
14,000,000 Target Corp.
6.57% due 7/17/00(a) 13,959,120
--------------------------------------------------------------------------------
Telecommunications -- 3.7%
13,000,000 AT & T Capital Corp.
6.50% due 7/17/00(a) 12,962,445
--------------------------------------------------------------------------------
Total Commercial Paper
(Cost $122,081,760) 122,081,760
--------------------------------------------------------------------------------
----------------------------
Repurchase Agreement -- 2.1%
----------------------------
$ 7,245,000 State Street Bank & Trust Co.
repurchase agreement,
dated 6/30/00, maturity
value $7,248,955 at 6.55%
due 7/3/00(1)
(Cost $7,245,000) $ 7,245,000
--------------------------------------------------------------------------------
Total Investments -- 134.1%
(Cost $468,971,193) 469,061,425
Payables for Mortgage Pass-Throughs
Delayed Delivery Securities(a) -- (34.6)% (121,136,232)
Cash, Receivables and Other
Assets Less Liabilities -- 0.5% 1,828,082
--------------------------------------------------------------------------------
Net Assets -- 100.0% $ 349,753,275
--------------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
(a) Commercial paper and repurchase agreement are segregated to cover forward
mortgage purchases.
See notes to financial statements.
--------------------------------------------------------------------------------
84
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments, at market (cost $468,971,193) $ 469,061,425
Cash 97
Receivable for securities sold 22,054,853
Interest receivable 4,003,720
Receivable for fund shares sold 24,360
Other assets 490
-------------
TOTAL ASSETS 495,144,945
-------------
LIABILITIES
Payable for forward mortgage securities
purchased 121,136,232
Payable for securities purchased 23,781,833
Payable for fund shares redeemed 291,490
Accrued expenses 38,420
Due to affiliates 143,695
-------------
TOTAL LIABILITIES 145,391,670
-------------
NET ASSETS $ 349,753,275
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 2,961,213
Additional paid-in capital 354,627,419
Undistributed net investment income 11,916,501
Accumulated net realized loss on investments (19,842,090)
Net unrealized appreciation of investments 90,232
-------------
NET ASSETS $ 349,753,275
=============
Shares Outstanding -- $0.10 par value 29,612,133
-------------
NET ASSET VALUE PER SHARE $ 11.81
=============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Interest $ 12,708,009
-------------
Expenses:
Investment advisory fees -- Note B 891,425
Custodian fees 52,736
Printing expense 11,208
Audit fees 9,883
Directors' fees -- Note B 6,215
Registration fees 2,281
Legal fees 1,974
Insurance expense 403
Loan commitment fees -- Note H 277
Other 350
------------
Total Expenses 976,752
------------
Net Investment Income 11,731,257
------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note F
Net realized loss on investments (11,256,271)
Net change in unrealized depreciation
of investments 11,638,305
------------
Net Realized and Unrealized Gain
on Investments 382,034
------------
Net Increase in Net Assets
from Operations $ 12,113,291
============
See notes to financial statements.
--------------------------------------------------------------------------------
85
<PAGE>
--------------------------------------------------------------------------------
The Guardian Bond Fund, Inc.
----------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 2000 1999
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 11,731,257 $ 21,052,916
Net realized loss on investments (11,256,271) (8,373,543)
Net change in unrealized appreciation/(depreciation) of investments 11,638,305 (15,282,158)
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations 12,113,291 (2,602,785)
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income -- (21,062,469)
Net realized gain on investments -- (965,082)
------------- -------------
Total Dividends and Distributions to Shareholders -- (22,027,551)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from capital share transactions -- Note G (38,790,770) 19,673,995
------------- -------------
Net Decrease in Net Assets (26,677,479) (4,956,341)
Net Assets:
Beginning of period 376,430,754 381,387,095
------------- -------------
End of period* $ 349,753,275 $ 376,430,754
============= =============
* Includes undistributed net investment income of: $ 11,916,501 $ 185,244
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
86
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 2000 --------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .......... $11.41 $12.23 $12.11 $11.83 $12.25 $11.08
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income ........ 0.40 0.68 0.69 0.75 0.76 0.76
Net realized and
unrealized gain/
(loss) on investments ...... -- (0.79) 0.28 0.29 (0.42) 1.17
------ ------ ------ ------ ------ ------
Net increase/(decrease)
from investment
operations ................. 0.40 (0.11) 0.97 1.04 0.34 1.93
------ ------ ------ ------ ------ ------
Dividends and Distributions
to Shareholders from:
Net investment income ........ -- (0.68) (0.69) (0.76) (0.76) (0.76)
Net realized gain ............ -- (0.03) (0.16) -- -- --
------ ------ ------ ------ ------ ------
Total dividends and
distributions .............. -- (0.71) (0.85) (0.76) (0.76) (0.76)
------ ------ ------ ------ ------ ------
Net asset value, end of
period ..................... $11.81 $11.41 $12.23 $12.11 $11.83 $12.25
------ ------ ------ ------ ------ ------
Total return* ................... 3.51% (0.84)% 8.10% 8.99% 2.88% 17.59%
------ ------ ------ ------ ------ ------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............ $349,753 $376,431 $381,387 $355,412 $354,433 $374,462
Ratio of expenses to
average net assets ......... 0.55%(a) 0.57% 0.67% 0.59% 0.54% 0.54%
Ratio of expenses (excluding
interest expense) to average
net assets ................. N/A 0.55% 0.55% 0.55% N/A N/A
Ratio of net investment
income to average net assets 6.58%(a) 5.78% 5.51% 6.15% 6.12% 6.43%
Portfolio turnover
rate ....................... 156% 257% 287% 340% 188% 298%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
--------------------------------------------------------------------------------
87
<PAGE>
--------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
----------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
-------------------------
Commercial Paper -- 94.7%
-------------------------
Principal Maturity
Amount Date Value
-------------------------------------------------------------------------------
FINANCIAL -- 47.6%
Asset Backed Securities-Other -- 13.3%
$ 18,000,000 Clipper Receivables Corp.
6.57% 7/21/00 $ 17,934,300
Govco, Inc.
12,500,000 6.56% 8/21/00 12,383,833
7,000,000 6.56% 8/22/00 6,933,671
18,000,000 Variable Funding Capital
6.57% 7/5/00 17,986,860
------------
55,238,664
-------------------------------------------------------------------------------
Banks -- 12.0%
18,000,000 Bank of America Corp.
6.64% 10/10/00 17,664,680
15,000,000 Deutsche Bank
6.22% 7/10/00 15,000,000
17,000,000 Dresdner U.S. Fin.
6.54% 7/3/00 16,993,823
------------
49,658,503
-------------------------------------------------------------------------------
Finance Companies -- 17.5%
18,000,000 Associates First Capital
6.54% 7/24/00 17,924,790
8,000,000 California Housing Fin.
6.80% 7/5/00 8,000,000
16,000,000 Household Fin. Corp.
6.55% 7/5/00 15,988,356
16,000,000 Goldman Sachs Group, Inc.
6.54% 7/11/00 15,970,933
15,000,000 Private Export Funding Corp.
6.10% 7/6/00 14,987,292
------------
72,871,371
-------------------------------------------------------------------------------
Utilities-Electric and Water -- 4.8%
20,000,000 Nat'l. Rural Utils. Coop. Fin.
Corp., 5.97% 7/6/00 19,983,417
-------------------------------------------------------------------------------
Total Financial 197,751,955
-------------------------------------------------------------------------------
INDUSTRIAL -- 47.1%
Automotive -- 12.9%
18,000,000 DaimlerChrysler NA Hldg. Corp.
6.53% 7/17/00 17,947,760
18,000,000 Ford Motor Co.
6.54% 7/7/00 17,980,380
18,000,000 General Motors Acceptance Corp.
6.53% 7/18/00 17,944,495
------------
53,872,635
-------------------------------------------------------------------------------
Conglomerates -- 7.9%
18,000,000 General Electric Capital Corp.
6.58% 8/15/00 17,851,950
14,909,000 Invensys PLC
6.90% 7/6/00 14,894,712
------------
32,746,662
-------------------------------------------------------------------------------
Food, Beverage and Tobacco -- 4.3%
18,000,000 Heinz (H.J.) Co.
6.54% 8/11/00 17,865,930
-------------------------------------------------------------------------------
Manufacturing -- 3.6%
15,000,000 Illinois Tool Works, Inc.
6.55% 7/25/00 14,934,500
-------------------------------------------------------------------------------
Metals-Miscellaneous -- 4.3%
18,000,000 Rio Tinto America, Inc.
6.54% 8/14/00 17,856,120
-------------------------------------------------------------------------------
Oil and Gas Services -- 4.1%
17,000,000 Equilon Enterprises LLC
6.53% 8/4/00 16,895,157
-------------------------------------------------------------------------------
Telecommunications -- 6.4%
19,000,000 AT & T Capital Corp.
6.54% 8/8/00 18,868,837
8,000,000 Bell Atlantic Finl. Svcs.
6.50% 7/3/00 7,997,111
------------
26,865,948
-------------------------------------------------------------------------------
Utilities-Electric and Water -- 3.6%
15,000,000 Duke Capital Corp.
7.00% 7/5/00 14,988,334
-------------------------------------------------------------------------------
Total Industrial 196,025,286
-------------------------------------------------------------------------------
Total Commercial Paper
(Cost $393,777,241) 393,777,241
-------------------------------------------------------------------------------
----------------------------
Repurchase Agreement -- 5.3%
----------------------------
$ 22,130,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/00, maturity value
$22,142,079 at 6.55%
due 7/3/00(1)
(Cost $22,130,000) $ 22,130,000
-------------------------------------------------------------------------------
Total Investments -- 100.0%
(Cost $415,907,241) 415,907,241
Liabilities in Excess of Cash,
Receivables and Other Assets -- (0.0)% (90,535)
-------------------------------------------------------------------------------
Net Assets -- 100.0% $415,816,706
-------------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
See notes to financial statements.
--------------------------------------------------------------------------------
88
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments, at market (cost $415,907,241) $415,907,241
Cash 617
Interest receivable 427,288
Receivable for fund shares sold 61,008
Other assets 612
------------
TOTAL ASSETS 416,396,766
------------
LIABILITIES
Payable for fund shares redeemed 343,893
Accrued expenses 61,552
Due to affiliates 174,615
------------
TOTAL LIABILITIES 580,060
------------
NET ASSETS $415,816,706
============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 4,158,167
Additional paid-in capital 411,658,539
------------
NET ASSETS $415,816,706
============
Shares Outstanding -- $0.10 par value 41,581,671
------------
NET ASSET VALUE PER SHARE $ 10.00
============
STATEMENT OF OPERATIONS SIX MONTHS ENDED
June 30, 2000 (Unaudited)
Investment Income:
Interest $13,203,517
-----------
Expenses:
Investment advisory fees -- Note B 1,077,704
Custodian fees 42,668
Printing expense 12,706
Audit fees 9,633
Directors' fees -- Note B 6,215
Legal fees 2,038
Registration fees 994
Insurance expense 503
Loan commitment fees -- Note H 340
Other 350
-----------
Total Expenses 1,153,151
-----------
Net Investment Income,
Representing Net Increase in
Net Assets from Operations $12,050,366
===========
See notes to financial statements.
--------------------------------------------------------------------------------
89
<PAGE>
--------------------------------------------------------------------------------
The Guardian Cash Fund, Inc.
----------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31
June 30, 2000 1999
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 12,050,366 $ 21,309,724
------------- -------------
Net Increase in Net Assets from Operations 12,050,366 21,309,724
------------- -------------
Dividends to Shareholders from:
Net investment income (12,050,366) (21,309,724)
------------- -------------
From Capital Share Transactions:
Net increase/(decrease) in net assets from capital share transactions -- Note G (68,311,713) 64,645,765
------------- -------------
Net Increase/(Decrease) in Net Assets (68,311,713) 64,645,765
Net Assets:
Beginning of period 484,128,419 419,482,654
------------- -------------
End of period $ 415,816,706 $ 484,128,419
============= =============
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
90
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 2000 --------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period . $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......................... 0.28 0.47 0.50 0.50 0.49 0.54
Dividends to
Shareholders from:
Net investment income ............ (0.28) (0.47) (0.50) (0.50) (0.49) (0.54)
------ ------ ------ ------ ------ ------
Net asset value, end of period ...... $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------ ------
Total return* ....................... 2.82% 4.77% 5.10% 5.14% 4.98% 5.52%
------ ------ ------ ------ ------ ------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ................. $415,817 $484,128 $419,483 $368,122 $378,322 $356,820
Ratio of expenses to
average net assets .............. 0.54%(a) 0.53% 0.53% 0.54% 0.54% 0.54%
Ratio of net investment
income to average net assets .... 5.59%(a) 4.68% 4.99% 5.02% 4.86% 5.39%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
--------------------------------------------------------------------------------
91
<PAGE>
--------------------------------------------------------------------------------
The Guardian Variable Contract Funds,
The Guardian Bond Fund, The Guardian Cash Fund
----------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
----------------------------------------------
Note A -- Organization and Accounting Policies
----------------------------------------------
The Guardian Variable Contract Funds, Inc. (GVCF) was organized in March
1983 and was formerly known as "The Guardian Stock Fund, Inc." prior to
September 13, 1999. Shares are offered in four series: The Guardian Stock Fund
(GSF), The Guardian VC 500 Index Fund (GVC500IF), The Guardian VC Asset
Allocation Fund (GVCAAF), and The Guardian VC High Yield Bond Fund (GVCHYBF).
The Guardian Life Insurance Company of America (Guardian Life) commenced
investment into the GVCHYBF on August 17, 1999, GVC500IF on August 25, 1999, and
the GVCAAF on September 15, 1999, with 107,281 shares for $1,072,813; 20,027,804
shares for $200,278,036; and 2,500,000 shares for $25,000,000, respectively, to
facilitate operations. Information presented in this financial statement
excludes GVCHYBF which is presented in separate reports.
GVCF, The Guardian Bond Fund, Inc. (GBF) and The Guardian Cash Fund, Inc.
(GCF), are each incorporated in the state of Maryland and are diversified
open-end management investment companies registered under the Investment Company
Act of 1940, as amended (1940 Act). Each series of GVCF and GBF and GCF are
referred to collectively as the "Funds" and individually as a "Fund."
GSF offers two classes of shares: Class I and Class II. The Class I shares
of GSF, and shares of GVC500IF, GVCAAF, GBF and GCF, are only sold to certain
separate accounts of The Guardian Insurance & Annuity Company, Inc. (GIAC). GIAC
is a wholly-owned subsidiary of Guardian Life. GSF's Class II shares are offered
through the ownership of variable annuities and variable life insurance policies
issued by other insurance companies that offer GSF as an investment option
through their separate accounts. The two classes of shares for GSF represent
interests in the same portfolio of investments, have the same rights and are
generally identical in all respects except that each class bears certain class
expenses, and has exclusive voting rights with respect to any matter to which a
separate vote of any class is required. As of June 30, 2000, no Class II shares
have been issued.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Significant accounting policies of the Funds are as follows:
Investments
Securities listed on national securities exchanges are valued based upon
closing prices on these exchanges. Securities traded in the over-the-counter
market and listed securities for which there have been no trades for the day are
valued at the mean of the bid and asked prices.
Pursuant to valuation procedures approved by the Board of Directors,
certain debt securities may be valued each business day by an independent
pricing service (Service). Debt securities for which quoted bid prices are
readily available and representative of the bid side of the market, in the
judgement of the Service, are valued at the bid price. Other debt securities
that are valued by the Service are carried at fair value as determined by the
Service, based on methods which include consideration of: yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions.
Securities for which market quotations are not readily available,
including certain mortgage-backed securities and restricted securities, are
valued by using methods that each Fund's Board of Directors, in good faith,
believes will accurately reflect their fair value.
The valuation of securities held by GCF is based upon their amortized cost
which approximates market value, in accordance with Rule 2a-7 under the 1940
Act. Amortized cost valuations do not take into account unrealized gains and
losses.
Investment securities transactions are recorded on the date of purchase or
sale. Repurchase agreements are carried at cost, which approximates value (see
Note C).
--------------------------------------------------------------------------------
92
<PAGE>
--------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
Net realized gain or loss on sales of investments is determined on an
identified cost basis. Interest income, including amortization of premium and
discount, is recorded when earned. Dividends are recorded on the ex-dividend
date.
Foreign Currency Translation
GSF and GVC500IF are permitted to buy international securities that are
not U.S. dollar denominated. Their books and records are maintained in U.S.
dollars as follows:
(1) The foreign currency market value of investment securities and other
assets and liabilities stated in foreign currencies are translated into U.S.
dollars at the current rate of exchange.
(2) Purchases, sales, income and expenses are translated at the rate of
exchange prevailing on the respective dates of such transactions.
The resulting gains and losses are included in the Statement of Operations
as follows:
Realized foreign exchange gains and losses, which result from changes in
foreign exchange rates between the date on which a Fund earns dividends and
interest or pays foreign withholding taxes or other expenses and the date on
which U.S. dollar equivalent amounts are actually received or paid, are included
in net realized gain or loss on foreign currency related transactions. Realized
foreign exchange gains and losses which result from changes in foreign exchange
rates between the trade and settlement dates on security and currency
transactions are also included in net realized gains and losses on foreign
currency related transactions. Net currency gains and losses from valuing other
assets and liabilities denominated in foreign currency at the period end
exchange rate are reflected in net change in unrealized appreciation or
depreciation from translation of assets and liabilities denominated in foreign
currencies.
Forward Foreign Currency Contracts
GSF and GVC500IF may enter into forward foreign currency contracts in
connection with planned purchases or sales of securities, or to hedge against
changes in currency exchange rates affecting the values of securities
denominated in a particular currency. A forward foreign currency contract is a
commitment to purchase or sell a foreign currency at a future date at a
negotiated forward exchange rate. Fluctuations in the value of forward foreign
currency exchange contracts are recorded for book purposes as unrealized gains
or losses on foreign currency related transactions by the Fund. When forward
contracts are closed, the Funds record realized gains or losses equal to the
difference between the values of such forward contracts at the time each was
opened and the value at the time each was closed. Such amounts are recorded in
net realized gains or losses on foreign currency related transactions. The Funds
will not enter into a forward foreign currency contract if such contract would
obligate the applicable Fund to deliver an amount of foreign currency in excess
of the value of the Fund's portfolio securities or other assets denominated in
that currency.
Futures Contracts
GSF, GVC500IF and GVCAAF may enter into financial futures contracts for
the delayed delivery of securities, currency or contracts based on financial
indices at a fixed price on a future date. In entering into such contracts, the
Funds are required to deposit either in cash or securities an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the Funds each day, depending on the daily fluctuations in the value
of the underlying security, and are recorded for financial statement purposes as
unrealized gains or losses by the Funds. The Funds' investments in financial
futures contracts are designed to hedge against anticipated future changes in
interest or exchange rates or securities prices (or for non-hedging purposes).
Should interest or exchange rates or securities prices move unexpectedly, the
Funds may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss.
Taxes
Each Fund qualifies and intends to remain qualified to be taxed as a
"regulated investment company" under the provisions of the Internal Revenue Code
(Code), and as such will not be subject to federal income tax on investment
income (including any realized capital gains) which
--------------------------------------------------------------------------------
93
<PAGE>
--------------------------------------------------------------------------------
The Guardian Variable Contract Funds,
The Guardian Bond Fund, The Guardian Cash Fund
----------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
is distributed to its shareholders in accordance with the applicable provisions
of the Code. Therefore, no federal income tax provision is required.
Reclassifications of Capital Accounts
The treatment for financial statement purposes of distributions made
during the year from net investment income and net realized gains may differ
from their ultimate treatment for federal income tax purposes. These differences
primarily are caused by differences in the timing of the recognition of certain
components of income or capital gain, and the recharacterization of foreign
exchange gains or losses to either ordinary income or realized capital gains for
federal income tax purposes. Where such differences are permanent in nature,
they are reclassified in the components of net assets based on their ultimate
characterization for federal income tax purposes. Any such reclassifications
will have no effect on net assets, results of operations, or net asset value per
share of the Funds.
Dividend Distributions
GSF, GVC500IF, GVCAAF and GBF intend to distribute each year, as dividends
or capital gain distributions, substantially all net investment income and net
capital gains realized. All such dividends or distributions are credited in the
form of additional shares of the applicable Fund at net asset value on the
ex-dividend date. Such distributions are determined in conformity with federal
income tax regulations. Differences between the recognition of income on an
income tax basis and recognition of income based on generally accepted
accounting principles may cause temporary overdistributions of net realized
gains and net investment income. Currently, the policy of GSF, GVC500IF, GVCAAF
and GBF is to distribute net investment income approximately every six months
and net capital gains annually. This policy is, however, subject to change at
any time by each Fund's Board of Directors.
GCF earns interest on its investments and declares all of its net
investment income, increased or decreased by realized gains or losses, each day
GCF is open for business. Earnings for Saturdays, Sundays and holidays are
declared as a dividend on the next business day. All dividends and distributions
are credited in the form of additional shares of GCF at net asset value on the
payable date.
------------------------------------------------------------------------
Note B -- Investment Advisory Agreements and Payments to Related Parties
------------------------------------------------------------------------
Each Fund has an investment advisory agreement with Guardian Investor
Services Corporation (GISC), a wholly-owned subsidiary of GIAC. GSF, GVCAAF, GBF
and GCF pay investment advisory fees at an annual rate of .50% of the average
daily net assets of each Fund. GVC500IF pays investment advisory fees at an
annual rate of .25%, of its average daily net assets. GISC voluntarily assumes a
portion of the ordinary operating expenses (excluding interest expense
associated with securities lending) that exceeds .28% of the average daily net
assets of GVC500IF. As it relates to the subsidy for GVC500IF, GISC subsidized
.06% of the ordinary operating expenses of GVC500IF and $79,230 for the six
month period ending June 30, 2000. If total expenses of any Fund, (excluding
taxes, interest and brokerage commissions, but including the investment advisory
fee) exceed 1% per annum of the average daily net assets of the Fund, GISC has
agreed to assume any such expenses. None of the Funds exceeded this limit during
the six months ended June 30, 2000.
There are no duplicative advisory fees charged to GVCAAF on assets
invested in other Guardian Funds. Under an SEC exemptive order, advisory fees
are paid at the underlying Fund level.
No compensation is paid by any of the Funds to a director who is deemed to
be an "interested person" (as defined in the 1940 Act) of a Fund. Each director
not deemed an "interested person" is paid an annual fee of $500 by each Fund,
and $350 for attendance at each meeting of each Fund.
--------------------------------------------------------------------------------
94
<PAGE>
--------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
-------------------------------
Note C -- Repurchase Agreements
-------------------------------
Collateral underlying repurchase agreements takes the form of either cash
or fully negotiable U.S. government securities. Repurchase agreements are fully
collateralized (including the interest earned thereon) and such collateral is
marked-to-market daily while agreements remain in force. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Funds will require the seller to deposit additional collateral by
the next business day. If the request for additional collateral is not met, or
the seller defaults, the Funds maintain the right to sell the collateral and may
claim any resulting loss against the seller. Each Fund's Board of Directors has
established standards to evaluate creditworthiness of broker-dealers and banks
which engage in repurchase agreements with each Fund.
---------------------------------------
Note D -- Reverse Repurchase Agreements
---------------------------------------
GBF may enter into a reverse repurchase agreement with banks or
third-party broker-dealers to borrow short-term funds. Interest on the value of
reverse repurchase agreements is based upon competitive market rates at the time
of issuance. At the time GBF enters into a reverse repurchase agreement, the
Fund establishes and maintains cash, U.S. government securities or liquid,
unencumbered securities that are marked-to-market daily in a segregated account
with the Fund's custodian. The value of such segregated assets must be at least
equal to the value of the repurchase obligation (principal plus accrued
interest), as applicable. Reverse repurchase agreements involve the risk that
the buyer of the securities sold by GBF may be unable to deliver the securities
when the Fund seeks to repurchase them.
----------------------------------
Note E -- Dollar Roll Transactions
----------------------------------
GBF may enter into dollar roll transactions with financial institutions to
take advantage of opportunities in the mortgage market. A dollar roll
transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase similar securities at an agreed upon price
and date. The securities repurchased will bear the same interest as those sold,
but generally will be collateralized at time of delivery by different pools of
mortgages with different prepayment histories than those securities sold. During
the period between the sale and repurchase, the Fund will not be entitled to
receive interest and principal payments on the securities sold. Dollar roll
transactions involve the risk that the buyer of the securities sold by GBF may
be unable to deliver the securities when the Fund seeks to repurchase them.
---------------------------------
Note F -- Investment Transactions
---------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the six months ended June 30, 2000 were as follows:
GSF GVC500IF
--- --------
Purchases ............................ $1,940,969,416 $ 102,718,762
Proceeds ............................. $2,104,415,257 $ 649,965
GVCAAF GBF
------ ---
Purchases ............................ $ 21,010 $ 544,853,980
Proceeds ............................. $ -- $ 574,275,890
--------------------------------------------------------------------------------
95
<PAGE>
--------------------------------------------------------------------------------
The Guardian Variable Contract Funds,
The Guardian Bond Fund, The Guardian Cash Fund
----------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
The cost of investments owned at June 30, 2000 for federal income tax
purposes was substantially the same as the cost for financial reporting
purposes. The gross unrealized appreciation and depreciation of investments at
June 30, 2000 for GSF, GVC500IF, GVCAAF, and GBF were as follows:
GSF GVC500IF
--- --------
Gross Appreciation ................... $1,468,355,927 $ 39,501,442
Gross Depreciation ................... (67,330,804) (29,890,709)
-------------- --------------
Net Unrealized Appreciation ........ $1,401,025,123 $ 9,610,733
============== ==============
GVCAAF GBF
------ ---
Gross Appreciation ................... $ 1,236,387 $ 2,858,369
Gross Depreciation ................... -- (2,768,137)
-------------- --------------
Net Unrealized Appreciation ........ $ 1,236,387 $ 90,232
============== ==============
---------------------------------------
Note G -- Transactions in Capital Stock
---------------------------------------
There are 800,000,000 shares of $0.001 par value capital stock authorized
for the Guardian Variable Contract Funds, Inc., divided into two classes,
designated Class I and Class II shares. GSF Class I consists of 300,000,000
shares; GVC500IF Class I consists of 200,000,000 shares; GVCAAF Class I consists
of 100,000,000 shares; and GSF Class II consists of 100,000,000 shares. There
are 100,000,000 shares of $0.10 par value capital stock authorized for each of
GBF and GCF. Through June 30, 2000, no Class II shares of GSF were sold.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31,
2000 1999 2000 1999
(Unaudited) (Audited) (Unaudited) (Audited)
--------------------------------------------------------------------------------------------------------------------
Shares Amount
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian Stock Fund
Shares sold 2,474,583 3,895,845 $ 139,518,564 $ 200,708,021
Shares issued in reinvestment of
dividends and distributions -- 10,952,668 -- 579,528,909
Shares repurchased (5,950,118) (13,883,608) (333,425,844) (710,398,541)
--------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (3,475,535) 964,905 $(193,907,280) $ 69,838,389
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Period from Six Months Ended Period from
June 30, August 25, 1999+ to June 30, August 25, 1999+ to
2000 December 31, 1999 2000 December 31, 1999
(Unaudited) (Audited) (Unaudited) (Audited)
--------------------------------------------------------------------------------------------------------------------
Shares Amount
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian VC 500 Index Fund
Shares sold 9,435,545 20,230,074 $ 104,034,724 $ 202,292,096
Shares issued in reinvestment of
dividends and distributions -- 68,952 -- 722,618
Shares repurchased (92,488) (31,530) (977,594) (322,421)
--------------------------------------------------------------------------------------------------------------------
Net increase 9,343,057 20,267,496 $ 103,057,130 $ 202,692,293
--------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
96
<PAGE>
--------------------------------------------------------------------------------
COMBINED NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
<TABLE>
<CAPTION>
Six Months Ended Period from Six Months Ended Period from
June 30, Sept. 15, 1999+ to June 30, Sept. 15, 1999+ to
2000 December 31, 1999 2000 December 31, 1999
(Unaudited) (Audited) (Unaudited) (Audited)
---------------------------------------------------------------------------------------------------------------------------
Shares Amount
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian VC Asset Allocation Fund
Shares sold 384,507 2,569,852 $ 4,265,839 $ 25,725,723
Shares issued in reinvestment of
dividends -- 29,168 -- 307,726
Shares repurchased (12,539) (37) (137,619) (389)
---------------------------------------------------------------------------------------------------------------------------
Net increase 371,968 2,598,983 $ 4,128,220 $ 26,033,060
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31,
2000 1999 2000 1999
(Unaudited) (Audited) (Unaudited) (Audited)
---------------------------------------------------------------------------------------------------------------------------
Shares Amount
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian Bond Fund, Inc.
Shares sold 1,031,842 8,170,108 $ 11,909,646 $ 96,955,789
Shares issued in reinvestment of
dividends and distributions -- 1,912,437 -- 22,027,550
Shares repurchased (4,398,576) (8,296,810) (50,700,416) (99,309,344)
---------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (3,366,734) 1,785,735 $(38,790,770) $ 19,673,995
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31,
2000 1999 2000 1999
(Unaudited) (Audited) (Unaudited) (Audited)
---------------------------------------------------------------------------------------------------------------------------
Shares Amount
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o The Guardian Cash Fund, Inc.
Shares sold 19,744,962 39,686,605 $197,449,481 $396,866,179
Shares issued in reinvestment of
dividends 1,205,037 2,130,972 12,050,366 21,309,724
Shares repurchased (27,781,156) (35,353,014) (277,811,560) (353,530,138)
---------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (6,831,157) 6,464,563 $(68,311,713) $ 64,645,765
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of operations.
------------------------
Note H -- Line of Credit
------------------------
A $100,000,000 line of credit available to all of the Funds and other
related Guardian Funds has been established with State Street Bank and Trust
Company and Bank of Montreal. The rate of interest charged on any borrowing is
based upon the prevailing Federal Funds rate at the time of the loan plus .50%
calculated on a 360 day basis per annum. For the six months ended June 30, 2000,
none of the Funds borrowed against this line of credit.
The Funds are obligated to pay State Street Bank and Trust Company and
Bank of Montreal a commitment fee computed at a rate of .08% per annum on the
average daily unused portion of the revolving credit.
--------------------------------------------------------------------------------
97
<PAGE>
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund
--------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
-----------------------
COMMON STOCKS -- 100.5%
-----------------------
Market
Shares Cost Value
--------------------------------------------------------------------------------
Agriculture -- 0.5%
85,000 Archer-Daniels-Midland Co. 1,411,949 834,062
--------------------------------------------------------------------------------
Automotive -- 0.5%
13,282 General Motors Corp. 885,755 771,186
--------------------------------------------------------------------------------
Automotive: Parts and Accessories -- 4.1%
50,000 Dana Corp. 1,732,048 1,059,375
100,000 GenCorp Inc. 890,885 800,000
68,000 Modine Manufacturing Co. 2,300,741 1,836,000
40,000 Scheib (Earl) Inc.+ 278,875 128,750
60,000 Standard Motor Products Inc. 1,329,363 510,000
20,000 Superior Industries
International Inc. 509,781 515,000
50,000 Tenneco Automotive Inc. 439,819 262,500
40,000 TransPro Inc. 274,101 202,500
60,000 Wynn's International Inc. 719,079 1,361,250
---------- ----------
8,474,692 6,675,375
--------------------------------------------------------------------------------
Aviation: Parts and Services -- 1.6%
18,000 AAR Corp. 250,688 216,000
52,000 Barnes Group Inc. 1,225,215 848,250
16,000 Curtiss-Wright Corp. 470,869 595,000
30,000 Fairchild Corp., Cl. A+ 354,724 146,250
7,500 Hi-Shear Industries Inc. 21,717 19,219
40,000 Kaman Corp., Cl. A 499,781 427,500
17,000 Moog Inc., Cl. A+ 446,825 448,375
---------- ----------
3,269,819 2,700,594
--------------------------------------------------------------------------------
Broadcasting -- 7.2%
68,000 Ackerley Group Inc. 588,667 799,000
4,000 BHC Communications Inc., Cl. A 595,200 608,000
67,100 Chris-Craft Industries Inc.+ 3,059,418 4,432,794
65,000 Granite Broadcasting Corp.+ 696,878 479,375
20,000 Gray Communications
Systems Inc. 350,675 196,250
80,000 Gray Communications
Systems Inc., Cl. B 1,015,412 780,000
12,000 Hearst-Argyle Television Inc.+ 251,729 234,000
45,000 Liberty Corp. 2,200,252 1,890,000
19,000 United Television Inc. 1,676,374 2,446,250
---------- ----------
10,434,605 11,865,669
---------- ----------
--------------------------------------------------------------------------------
Building and Construction -- 0.6%
52,000 Nortek Inc.+ 1,385,030 1,027,000
--------------------------------------------------------------------------------
Business Services -- 1.2%
15,000 Cendant Corp.+ 239,812 210,000
25,000 Nashua Corp.+ 341,104 206,250
15,000 Primark Corp. 561,375 558,750
17,000 Verio Inc.+ 990,187 943,234
---------- ----------
2,132,478 1,918,234
--------------------------------------------------------------------------------
Cable -- 3.2%
68,000 Cablevision Systems Corp.,
Cl. A+ 569,094 4,615,500
14,000 UnitedGlobalCom Inc., Cl. A+ 393,903 654,500
---------- ----------
962,997 5,270,000
--------------------------------------------------------------------------------
Computer Software and Services -- 0.4%
55,000 Genuity Inc.+ 577,525 503,594
4,000 Global Sources Ltd.+ 265,401 101,500
---------- ----------
842,926 605,094
--------------------------------------------------------------------------------
Consumer Products -- 2.9%
150,000 Carter-Wallace Inc. 2,578,085 3,018,750
42,000 Gallaher Group plc, ADR 902,524 900,375
30,000 National Presto Industries Inc. 1,117,685 922,500
---------- ----------
4,598,294 4,841,625
--------------------------------------------------------------------------------
Consumer Services -- 1.8%
200,000 Rollins Inc. 3,862,912 2,975,000
--------------------------------------------------------------------------------
Diversified Industrial -- 2.0%
40,000 Ampco-Pittsburgh Corp. 639,125 445,000
40,000 GATX Corp. 1,147,578 1,360,000
67,000 Katy Industries Inc. 946,550 787,250
33,000 Myers Industries Inc. 450,164 354,750
47,000 WHX Corp.+ 477,081 258,500
---------- ----------
3,660,498 3,205,500
--------------------------------------------------------------------------------
Energy and Utilities -- 5.8%
7,000 E'Town Corp. 461,163 465,062
32,000 Eastern Enterprises 1,261,850 2,016,000
269,800 El Paso Electric Co.+ 2,430,955 3,018,387
4,000 EnergyNorth Inc. 234,450 237,000
15,000 Florida Progress Corp. 704,701 703,125
5,000 Florida Public Utilities Co. 79,000 78,125
100,000 Kaneb Services Inc.+ 348,125 400,000
22,000 Southwest Gas Corp. 565,746 385,000
40,000 United Water Resources Inc. 1,344,500 1,395,000
10,000 Vastar Resources Inc. 819,875 821,250
---------- ----------
8,250,365 9,518,949
--------------------------------------------------------------------------------
Entertainment -- 12.7%
25,000 Fisher Companies Inc. 1,695,292 1,912,500
45,000 GC Companies Inc.+ 1,530,893 1,006,875
260,000 Liberty Media Group, Cl. A+ 762,816 6,305,000
30,000 Seagram Co. 1,713,605 1,740,000
12,000 Time Warner Inc. 521,410 912,000
22,000 TV Guide Inc., Cl. A+ 577,543 753,500
105,000 USA Networks Inc.+ 727,129 2,270,625
87,000 Viacom Inc., Cl. A+ 1,445,407 5,948,625
---------- ----------
8,974,095 20,849,125
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
98
<PAGE>
Market
Shares Cost Value
--------------------------------------------------------------------------------
Environmental Services -- 0.6%
60,000 EnviroSource Inc.+ 170,797 28,125
50,000 Waste Management Inc. 910,601 950,000
---------- ----------
1,081,398 978,125
--------------------------------------------------------------------------------
Equipment and Supplies -- 9.5%
50,000 AMETEK Inc. 937,874 875,000
35,000 Belden Inc. 658,062 896,875
25,000 CIRCOR International Inc.+ 269,028 204,687
38,000 CLARCOR Inc. 723,141 755,250
1,000 CTS Corp. 7,481 45,000
20,000 Cuno Inc.+ 383,875 462,500
12,000 Eastern Co. 203,575 157,500
135,500 Fedders Corp. 820,369 787,594
85,000 Flowserve Corp. 1,712,486 1,280,312
11,000 Franklin Electric Co. 361,576 745,250
35,000 IDEX Corp. 1,012,095 1,104,687
85,000 Mark IV Industries Inc. 1,621,708 1,774,375
65,000 Navistar International Corp.+ 2,068,395 2,019,063
30,000 Sequa Corp., Cl. A+ 1,048,824 1,145,625
49,000 SPS Technologies Inc.+ 2,084,176 2,012,063
70,000 UCAR International Inc.+ 1,262,496 914,375
40,000 Watts Industries Inc., Cl. A 557,285 505,000
---------- ----------
15,732,446 15,685,156
--------------------------------------------------------------------------------
Financial Services -- 4.9%
5,000 Advest Group Inc. 101,450 104,688
50,000 Allstate Corp. 1,235,322 1,112,500
68,000 Argonaut Group Inc. 2,021,414 1,164,500
45,000 Block (H&R) Inc. 1,715,666 1,456,875
30,000 First Union Corp. 907,996 744,375
44,500 Midland Co. 667,271 1,090,250
30,000 Pioneer Group Inc.+ 506,867 1,271,250
20,000 ReliaStar Financial Corp. 1,028,656 1,048,750
---------- ----------
8,184,642 7,993,188
--------------------------------------------------------------------------------
Food and Beverage -- 6.3%
25,000 Brown-Forman Corp., Cl. A 1,307,636 1,318,750
70,000 Corn Products International Inc. 2,046,746 1,855,000
15,000 Diageo plc, ADR 529,570 533,437
30,000 General Mills Inc. 1,006,315 1,147,500
30,000 Heinz (H.J.) Co. 1,411,102 1,312,500
40,000 Kellogg Co. 1,319,187 1,190,000
40,000 PepsiAmericas Inc.+ 141,200 120,000
23,339 Tootsie Roll Industries Inc. 400,129 816,865
35,000 Twinlab Corp.+ 386,176 223,125
150,000 Whitman Corp. 2,122,733 1,856,250
---------- ----------
10,670,794 10,373,427
--------------------------------------------------------------------------------
Health Care -- 2.7%
5,000 IVAX Corp.+ 29,839 207,500
42,000 Shared Medical Systems Corp. 3,038,780 3,063,375
30,000 Wesley Jessen VisionCare Inc.+ 1,113,939 1,126,875
---------- ----------
4,182,558 4,397,750
--------------------------------------------------------------------------------
Hotels and Gaming -- 4.4%
140,000 Aztar Corp.+ 999,359 2,170,000
15,000 Boca Resorts Inc., Cl. A+ 143,875 148,125
100,000 Gaylord Entertainment Co. 2,735,008 2,150,000
130,000 Hilton Hotels Corp. 1,585,697 1,218,750
115,000 Jackpot Enterprises Inc. 1,255,026 1,451,875
25,000 Trump Hotels & Casino
Resorts Inc.+ 167,500 70,313
---------- ----------
6,886,465 7,209,063
--------------------------------------------------------------------------------
Paper and Forest Products -- 1.0%
200,000 Pactiv Corp.+ 2,561,028 1,575,000
--------------------------------------------------------------------------------
Publishing -- 7.3%
34,000 Harcourt General Inc. 1,368,736 1,848,750
26,000 Lee Enterprises Inc. 640,556 606,125
25,000 McClatchy Newspapers Inc.,
Cl. A 721,881 828,125
80,000 Media General Inc., Cl. A 3,451,859 3,885,000
13,000 Meredith Corp. 267,779 438,750
40,000 Penton Media Inc. 605,042 1,400,000
12,000 PRIMEDIA Inc.+ 172,679 273,000
20,000 Pulitzer Inc. 596,916 843,750
32,000 Reader's Digest Association Inc.,
Cl. B 821,338 1,170,000
90,000 Thomas Nelson Inc. 1,053,318 770,625
---------- ----------
9,700,104 12,064,125
--------------------------------------------------------------------------------
Real Estate -- 1.4%
130,000 Catellus Development Corp.+ 2,089,775 1,950,000
35,000 Griffin Land & Nurseries Inc.+ 493,263 430,938
---------- ----------
2,583,038 2,380,938
--------------------------------------------------------------------------------
Retail -- 2.1%
5,000 Aaron Rents Inc. 100,625 62,813
10,000 Aaron Rents Inc., Cl. A 199,750 156,250
10,000 Albertson's Inc. 245,150 332,500
15,000 Hannaford Bros. Co. 1,080,229 1,078,125
40,000 Lillian Vernon Corp. 631,288 420,000
53,000 Neiman Marcus Group
Inc., Cl. B+ 1,409,652 1,470,750
---------- ----------
3,666,694 3,520,438
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
99
<PAGE>
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund
--------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
Market
Shares Cost Value
--------------------------------------------------------------------------------
Satellite -- 1.6%
50,000 COMSAT Corp. 1,283,602 1,234,375
15,999 General Motors Corp., Cl. H+ 1,525,812 1,403,912
----------- -------------
2,809,414 2,638,287
--------------------------------------------------------------------------------
Specialty Chemicals -- 4.3%
46,000 Bush Boake Allen Inc.+ 1,236,347 2,012,500
20,000 Dexter Corp. 798,938 960,000
40,000 Ferro Corp. 795,700 840,000
15,000 Material Sciences Corp.+ 163,956 150,000
85,000 McWhorter Technologies Inc.+ 1,667,063 1,652,188
65,000 Omnova Solutions Inc. 514,634 406,250
51,000 Sybron Chemicals Inc.+ 1,345,580 1,115,625
----------- -------------
6,522,218 7,136,563
--------------------------------------------------------------------------------
Telecommunications -- 4.5%
28,000 AT&T Canada Inc., Cl. B+ 881,938 929,250
33,250 AT&T Corp. 1,128,422 1,051,531
25,000 CenturyTel Inc. 680,105 718,750
230,000 Citizens Communications Co. 2,508,459 3,967,500
13,000 Rogers Communications
Inc., Cl. B, ADR+ 228,650 370,500
12,000 Viatel Inc.+ 371,518 342,750
----------- -------------
5,799,092 7,380,281
--------------------------------------------------------------------------------
Wireless Communications -- 5.4%
35,000 Rogers Cantel Mobile
Communications Inc., Cl. B+ 388,800 1,176,875
64,000 Telephone & Data Systems Inc. 2,644,953 6,416,000
20,000 United States Cellular Corp.+ 1,290,748 1,260,000
----------- -------------
4,324,501 8,852,875
--------------------------------------------------------------------------------
Total Investments -- 100.5% 143,850,807 165,242,629
===========
Other Assets and
Liabilities (Net) -- (0.5)% (809,909)
--------------------------------------------------------------------------------
Net Assets -- 100.0% $ 164,432,720
--------------------------------------------------------------------------------
For Federal tax purposes:
Aggregate cost $ 143,850,807
=============
Gross unrealized appreciation $ 36,530,180
Gross unrealized depreciation (15,138,358)
-------------
Net unrealized appreciation $ 21,391,822
=============
+ Non-income producing security.
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
100
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
Assets:
Investments, at value (Cost $143,850,807) $165,242,629
Dividends receivable 128,449
Receivable for investments sold 2,538,142
Other assets 3
------------
Total Assets 167,909,223
------------
Liabilities:
Payable to custodian 1,866,421
Payable for investments purchased 1,407,147
Payable for investment advisory fees 137,681
Other accrued expenses 65,254
------------
Total Liabilities 3,476,503
------------
Net Assets applicable to 9,121,202 shares
outstanding $164,432,720
============
Net Assets consist of:
Capital stock, at par value $ 9,121
Additional paid-in capital 121,588,473
Accumulated net investment income 144,342
Accumulated net realized gain on investments 21,298,962
Net unrealized appreciation on investments 21,391,822
------------
Total Net Assets $164,432,720
============
Net Asset Value, offering and redemption
price per share ($164,432,720 / 9,121,202
shares outstanding; 500,000,000 shares
authorized of $0.001 par value) $18.03
======
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Dividends $ 976,508
Interest 73,638
------------
Total Investment Income 1,050,146
------------
Expenses:
Management fees 824,755
Custodian fees 22,940
Legal and audit fees 20,350
Directors' fees 12,010
Organizational expenses 6,575
Shareholder services fees 2,397
Interest expense 14,810
Miscellaneous expenses 1,967
------------
Total Expenses 905,804
------------
Net Investment Income 144,342
------------
Net Realized and Unrealized Gain on
Investments:
Net realized gain on investments 21,536,348
Net change in unrealized depreciation
on investments (16,953,497)
------------
Net Realized and Unrealized Gain
on Investments 4,582,851
------------
Net Increase in Net Assets Resulting
from Operations $ 4,727,193
============
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
101
<PAGE>
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund
--------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31,
(unaudited) 1999
------------- -------------
<S> <C> <C>
Operations:
Net investment income $ 144,342 $ 208,390
Net realized gain on investments 21,536,348 17,364,582
Net change in unrealized appreciation (depreciation) on investments (16,953,497) 12,026,657
------------- -------------
Net increase in net assets resulting from operations 4,727,193 29,599,629
------------- -------------
Distributions to shareholders:
Net investment income -- (208,945)
Net realized gain on investments -- (16,915,440)
In excess of net realized gain on investments -- --
------------- -------------
Total distributions to shareholders -- (17,124,385)
------------- -------------
Capital share transactions:
Net increase (decrease) in net assets from capital share transactions (16,380,631) 8,249,947
------------- -------------
Net increase (decrease) in net assets (11,653,438) 20,725,191
Net Assets:
Beginning of period 176,086,158 155,360,967
------------- -------------
End of period $ 164,432,720 $ 176,086,158
============= =============
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
102
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
---------------
1. Organization
---------------
The Gabelli Capital Asset Fund (the "Fund"), a series of Gabelli Capital
Series Funds, Inc. (the "Company"), was organized on April 8, 1993 as a Maryland
corporation. The Company is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund's primary objective is growth of capital. The Fund
commenced investment operations on May 1, 1995. Shares of the Fund are available
to the public only through the purchase of certain variable annuity and variable
life insurance contracts issued by The Guardian Insurance & Annuity Company,
Inc. ("Guardian").
----------------------------------
2. Significant Accounting Policies
----------------------------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Fund in the
preparation of its financial statements.
Security Valuation.
Portfolio securities listed or traded on a nationally recognized
securities exchange, quoted by the National Association of Securities Dealers
Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are valued
at the last sale price on that exchange as of the close of business on the day
the securities are being valued (if there were no sales that day, the security
is valued at the average of the closing bid and asked prices or, if there were
no asked prices quoted on that day, then the security is valued at the closing
bid price on that day). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, LLC
(the "Adviser"). Securities and assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Directors. Short term debt securities with remaining maturities of 60 days or
less are valued at amortized cost, unless the Directors determine such does not
reflect the securities' fair value, in which case these securities will be
valued at their fair value as determined by the Directors. Short term debt
instruments having a greater maturity are valued at the highest bid price
obtained from a dealer maintaining an active market in those securities. Options
are valued at the last sale price on the exchange on which they are listed. If
no sales of such options have taken place that day, they will be valued at the
mean between their closing bid and asked prices.
Securities Transactions and Investment Income
Securities transactions are accounted for on the trade date with realized
gain or loss on the sale of investments determined by using the identified cost
method. Interest income (including amortization of premium and accretion of
discount) is recorded as earned. Dividend income is recorded on the ex-dividend
date.
Dividends and Distributions to Shareholders.
Dividends and distributions to shareholders are recorded on the
ex-dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund.
Provision for Income Taxes.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. As a result, a Federal income tax provision is not required.
Organizational Expenses.
A total of $100,000 in expenses was incurred in connection with the
organization of the Fund. These costs
--------------------------------------------------------------------------------
103
<PAGE>
--------------------------------------------------------------------------------
Gabelli Capital Asset Fund
--------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
were advanced by Guardian and will be reimbursed by the Fund. These
organizational costs were deferred and are being amortized on a straight-line
basis over a period of 60 months from the date the Fund commenced investment
operations.
-------------------------------------
3. Agreements with Affiliated Parties
-------------------------------------
Pursuant to a management agreement (the "Management Agreement"), the Fund
will pay Guardian Investor Services Corporation (the "Manager") a fee, computed
daily and paid monthly, at the annual rate of 1.00% of the value of the Fund's
average daily net assets. Pursuant to an Investment Advisory Agreement among the
Fund, the Manager and the Adviser, the Adviser, under the supervision of the
Company's Board of Directors and the Manager, manages the Fund's assets in
accordance with the Fund's investment objectives and policies, makes investment
decisions for the Fund, places purchase and sale orders on behalf of the Fund,
provides investment research and provides facilities and personnel required for
the Fund's administrative needs. The Adviser may delegate its administrative
role and currently has done so to PFPC Inc., the Fund's sub-administrator (the
"Sub-Administrator"). The Adviser will supervise the performance of
administrative and professional services provided by others and pays the
compensation of the Sub-Administrator and all officers and Directors of the
Company who are its affiliates. As compensation for its services and the related
expenses borne by the Adviser, the Manager pays the Adviser a fee, computed
daily and paid monthly, at the annual rate of 0.75% of the value of the Fund's
average daily net assets.
-----------------------
4. Portfolio Securities
-----------------------
Purchases and proceeds from the sales of securities for the six months
ended June 30, 2000, other than short term securities, aggregated $57,001,418
and $70,498,433, respectively.
-------------------------------
5. Transactions with Affiliates
-------------------------------
During the six months ended June 30, 2000, the Fund paid brokerage
commissions of $91,652 to Gabelli & Company, Inc. and its affiliates.
------------------
6. Line of Credit.
------------------
The Fund has access to an unsecured line of credit up to $25,000,000 from
the custodian for temporary borrowing purposes. Borrowings under this
arrangement bear interest at 0.75% above the Federal Funds rate on outstanding
balances. There were $1,870,000 of borrowings outstanding at June 30, 2000.
The average daily amount of borrowings outstanding within the six months
ended June 30, 2000 was $235,917, with a related weighted average interest rate
of 6.83%. The maximum amount borrowed at any time during the six months ended
June 30, 2000 was $4,793,000.
-----------------------------
7. Capital Stock Transactions
-----------------------------
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
---------------- -----------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 659,949 $ 11,463,506 2,216,370 $ 39,308,449
Shares issued upon
reinvestment of dividends -- -- 1,002,599 17,124,386
Shares redeemed (1,610,925) (27,844,137) (2,738,935) (48,182,888)
------------ ------------ ------------ ------------
Net increase/(decrease) 950,976 $(16,380,631) 480,034 $ 8,249,947
============ ============ ============ ============
</TABLE>
--------------------------------------------------------------------------------
104
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, 2000 -----------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995+
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Performance:
Net asset value, beginning of period .............. $ 17.48 $ 16.20 $ 15.31 $ 11.55 $ 10.70 $ 10.00
-------- -------- -------- -------- ------- -------
Net investment
income .......................................... 0.02 0.02 0.03 0.02 0.02 0.03(a)
Net realized and
unrealized gain on investments ................ 0.53 3.15 1.74 4.88 1.16 (0.80)
-------- -------- -------- -------- ------- -------
Total from investment
operations ...................................... 0.55 3.17 1.77 4.90 1.18 (0.83)
-------- -------- -------- -------- ------- -------
Distributions to Shareholders:
Net investment income ........................... -- (0.02) (0.03) (0.02) (0.02) (0.03)
Net realized gain on investments ................ -- (1.87) (0.78) (1.12) (0.31) (0.09)
In excess of net realized gain on investments ... -- -- (0.07) (0.00)(b) -- (0.01)
-------- -------- -------- -------- ------- -------
Total distributions ............................. -- (1.89) (0.88) (1.14) (0.33) (0.13)
-------- -------- -------- -------- ------- -------
Net asset value, end of
period ........................................ $ 18.03 $ 17.48 $ 16.20 $ 15.31 $ 11.55 $ 10.70
-------- -------- -------- -------- ------- -------
Total return++ .................................... 3.1% 19.8% 11.7% 42.6% 11.0% 8.4%
-------- -------- -------- -------- ------- -------
Ratios to average net assets and supplemental data:
Net assets, end of period
(000's omitted) ................................. $164,433 $176,086 $155,361 $105,350 $51,462 $26,364
Ratio of net investment
income to average net assets .................... 0.17%(c) 0.13% 0.19% 0.17% 0.21% 0.75%(c)
Ratio of operating expenses to
average net assets (d) (e) ...................... 1.10%(c) 1.08% 1.12% 1.17% 1.31% 1.78%(c)
Portfolio turnover
rate .......................................... 35% 54% 43% 65% 53% 81%
</TABLE>
+ From commencement of operations on May 1, 1995.
++ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period including reinvestment of dividends. Total return for the period of
less than one year in not annualized.
(a) Net investment income before expenses assumed by the Manager and Adviser
was $0.03.
(b) Amount represents less than $0.005 per share.
(c) Annualized.
(d) The ratio of operating expenses to average net assets before reimbursement
of expenses assumed by the Manager and Adviser would have been 1.92% for
the period ended December 31, 1995.
(e) The Fund incurred interest expense during the six months ended June 30,
2000. If interest expense had not been incurred, the ratio of operating
expenses to average net assets would have been 1.08%.
See notes to financial statements.
--------------------------------------------------------------------------------
105
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford International Fund
----------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
-------------------------------------------------------
Common Stocks -- 99.6%
-------------------------------------------------------
Shares Value
-------------------------------------------------------
Australia -- 2.3%
Business Services -- 0.6%
153,410 Brambles Industries Ltd. $ 4,709,916
Energy-Miscellaneous -- 0.6%
430,100 Broken Hill Ppty. 5,080,121
Financial-Banks -- 0.4%
197,600 National Australia Bank 3,296,837
Food, Beverage and Tobacco -- 0.3%
1,014,300 Fosters Brewing Group 2,851,030
Merchandising-Mass -- 0.4%
970,000 Woolworths Ltd.* 3,576,369
-----------
19,514,273
-------------------------------------------------------
Finland -- 5.6%
Telecommunications -- 5.6%
742,002 Nokia OYJ 37,863,385
195,950 Sonera OYJ 8,932,762
-----------
46,796,147
-------------------------------------------------------
France -- 11.0%
Electronics and Instuments -- 1.2%
44,680 Legrand 10,024,163
Financial-Banks -- 1.2%
101,960 BNP Paribas 9,811,998
Insurance -- 1.9%
100,950 AXA UAP 15,902,206
Media and Entertainment -- 1.6%
198,200 Societe Television
Francaise 1 13,813,178
Oil and Gas Producing -- 3.0%
160,730 Total Fina Elf S.A. 24,643,909
Retail-Food and Drug -- 2.1%
133,380 Aventis S.A.* 9,734,985
112,540 Carrefour 7,692,846
-----------
91,623,285
-------------------------------------------------------
Germany -- 6.6%
Business Services -- 2.3%
36,330 Intershop Comm.* 16,405,658
89,320 T Online* 2,895,047
Chemicals-Miscellaneous -- 1.1%
229,220 BASF AG 9,213,014
Computer Software -- 1.8%
96,825 SAP AG 14,374,244
Drugs and Hospitals -- 0.4%
99,440 GEHE AG 3,275,272
Electronics and Instruments -- 1.0%
83,406 Epcos AG* 8,320,303
-----------
54,483,538
-------------------------------------------------------
Hong Kong -- 3.5%
Computer Systems -- 0.3%
2,670,000 Legend Hldgs. Ltd. 2,585,915
Conglomerates -- 0.7%
440,000 Hutchison Whampoa 5,531,396
Financial-Banks -- 0.6%
2,038,600 Bank of East Asia Ltd. 4,759,479
Real Estate -- 1.2%
886,000 Cheung Kong Hldgs. 9,745,943
Telecommunications -- 0.5%
332,000 China Mobile* 2,927,971
814,000 China Unicom Ltd.* 1,717,696
Utilities-Electric -- 0.2%
638,500 Hong Kong Electric* 2,055,846
-----------
29,324,246
-------------------------------------------------------
Ireland -- 1.7%
Construction Materials -- 1.7%
755,910 CRH PLC 13,639,518
-------------------------------------------------------
Italy -- 4.5%
Financial-Banks -- 3.1%
1,033,800 Bipop-Carire SPA 8,132,627
1,006,900 San Paolo IMI SPA 17,870,341
Telecommunications -- 1.4%
1,108,950 Telecom Italia SPA 11,328,251
-----------
37,331,219
-------------------------------------------------------
Japan -- 21.9%
Automotive -- 1.1%
208,000 Toyota Motor Corp. 9,468,357
Chemicals -- 1.2%
1,697,000 Sumitomo Chemical 10,203,912
Commercial Services -- 0.2%
33,800 Benesse Corp. 2,341,360
Computer Software and
Technology -- 0.4%
23,700 Softbank Corp. 3,216,437
Computer Systems -- 1.3%
301,000 Fujitsu Ltd. 10,411,103
Drugs and Hospitals -- 1.3%
161,000 Takeda Chemical Industries
Ltd. 10,560,860
Electronics and Instruments -- 5.2%
33,500 Hirose Electric Co. Ltd.* 5,212,620
667,000 Hitachi 9,617,926
51,000 Kyocera Corp. 8,647,001
33,500 Rohm Co. 9,787,475
106,700 Sony Corp. 9,955,516
Engineering and Machineries -- 1.3%
57,300 SMC Corp. 10,773,621
Financial-Other -- 4.1%
841,000 Mitsubishi Trading & Brokerage 6,523,190
344,000 Nomura Securities Co. Ltd. 8,413,176
125,000 Promise Co. 9,872,297
729,000,000 Sanwa Int'l. Financial
Ltd.* 6,922,082
354,000 Sumitomo Marine & Fire
Insurance* 2,058,508
Household Products -- 1.3%
351,000 Kao Corp. 10,718,063
-------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
106
<PAGE>
Shares Value
------------------------------------------------------
Retail Trade -- 1.0%
19,600 Fast Retailing Co. Ltd.* $ 8,201,687
Telecommunications -- 3.5%
895 Nippon Tele. & Tel. Corp. 11,893,408
624 NTT DoCoMo, Inc. 16,878,376
------------
181,676,975
------------------------------------------------------
Netherlands -- 7.7%
Broadcasting and Publishing -- 2.3%
364,270 Ver Ned Uitgevers* 18,814,288
Computer Services -- 0.6%
372,680 CMG PLC 5,265,807
Computer Systems -- 1.2%
225,600 ASM Lithography Hldg. NV* 9,696,426
Electronics and Instruments -- 2.4%
428,450 Philips Electronics (KON) 20,206,645
Insurance -- 1.2%
273,400 Aegon NV 9,728,033
------------
63,711,199
------------------------------------------------------
New Zealand -- 0.5%
Telecommunications -- 0.5%
1,063,112 Telecom. Corp. of
New Zealand 3,715,358
------------------------------------------------------
Portugal -- 1.6%
Business Services -- 0.7%
PT Multimedia SGPS
93,920 Common* 4,662,604
93,920 Rights* 720,014
Transportation -- 0.9%
888,060 Brisa (Auto Estrada) 7,647,438
------------
13,030,056
------------------------------------------------------
Singapore -- 0.4%
Publishing and Printing -- 0.4%
238,846 Singapore Press Hldgs. 3,734,130
------------------------------------------------------
South Korea -- 1.0%
Electronics and Instruments -- 0.5%
21,500 Samsung Electronics GDR* 4,214,000
Utilities-Electric -- 0.5%
227,440 Korea Electric Power
Corp. ADR* 4,193,425
------------
8,407,425
------------------------------------------------------
Spain -- 3.0%
Financial-Banks -- 1.1%
886,200 Banco Santander Central
Hispano S.A.* 9,348,913
Telecommunications -- 1.9%
738,570 Telefonica S.A.* 15,865,045
------------
25,213,958
------------------------------------------------------
Sweden -- 4.6%
Construction and Mining
Equipment -- 0.6%
264,217 Atlas Copco AB 4,942,835
Retail-General -- 0.4%
146,110 Hennes & Mauritz 3,048,100
Telecommunications -- 3.6%
1,542,120 LM Ericsson 30,510,197
------------
38,501,132
------------------------------------------------------
Switzerland -- 4.3%
Business Services -- 1.9%
18,309 Adecco S.A. 15,555,860
Drugs and Hospitals -- 0.9%
748 Roche Hldgs. AG 7,281,457
Financial-Banks -- 1.5%
64,960 Credit Suisse Group 12,921,915
------------
35,759,232
------------------------------------------------------
Taiwan -- 0.5%
Electronics and Instruments -- 0.5%
143,190 Winbond Electronics Corp. GDR* 4,116,713
------------------------------------------------------
United Kingdom -- 18.9%
Capital Equipment -- 0.0%
39,460 Psion PLC 381,527
Computer Software -- 0.4%
393,380 Sage Group 3,184,444
Conglomerates -- 0.4%
278,000 Smiths Industries PLC 3,617,519
Constructions -- 0.9%
1,084,000 Hanson PLC 7,659,734
Drugs and Hospitals -- 2.4%
489,000 Glaxo Wellcome 14,257,983
438,000 Smithkline Beecham 5,732,680
Electronics -- 0.7%
199,000 ARM Hldgs. PLC* 2,131,836
373,000 Electrocomponents 3,809,607
Financial-Banks -- 3.2%
252,000 Barclays 6,264,777
300,625 Halifax PLC 2,883,911
654,000 HSBC Hldgs. 7,476,180
502,000 Lloyds TSB Group PLC 4,739,754
330,088 Royal Bank of Scotland* 5,523,984
Financial Services -- 1.3%
403,500 Amvescap PLC 6,471,678
258,000 CGU PLC* 4,294,177
Food, Beverage and Tobacco -- 1.3%
961,900 Imperial Tobacco* 9,213,002
145,702 Whitbread 1,311,747
Insurance -- 0.3%
186,000 Prudential Corp. 2,724,306
Leisure Products -- 0.3%
240,000 Granada Group 2,396,750
Oil and Gas -- 0.6%
617,000 Shell Transport & Trading* 5,148,707
Oil-Integrated-International -- 2.3%
1,947,936 BP Amoco PLC 18,686,651
------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
107
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford International Fund
----------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)(Continued)
Shares Value
------------------------------------------------------
Telecommunications -- 4.8%
547,000 British Telecom. $ 7,068,263
129,496 Cable & Wireless Co. 2,192,570
58,000 Energis PLC* 2,174,687
6,888,188 Vodafone Airtouch PLC 27,828,115
------------
157,174,589
------------------------------------------------------
Total Common Stocks
(Cost $626,245,950) 827,752,993
------------------------------------------------------
Total Investments -- 99.6%
(Cost $626,245,950) 827,752,993
Cash, Receivables and Other
Assets Less Liabilities -- 0.4% 3,665,261
------------------------------------------------------
Net Assets -- 100.0% $831,418,254
------------------------------------------------------
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
108
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments, at market (cost $626,245,950) $ 827,752,993
Foreign currency (cost $3,852,364) 3,747,696
Dividend reclaims receivable 699,081
Receivable for securities sold 596,058
Dividends receivable 410,971
Receivable for fund shares sold 100,559
Other assets 975
-------------
TOTAL ASSETS 833,308,333
-------------
LIABILITIES
Accrued expenses 955,813
Due to custodian 491,552
Payable for fund shares redeemed 442,714
-------------
TOTAL LIABILITIES 1,890,079
-------------
NET ASSETS $ 831,418,254
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 3,379,034
Additional paid-in capital 527,199,068
Distributions in excess of net investment income (731,018)
Accumulated net realized gain on investments
and foreign currency related transactions 100,174,215
Net unrealized appreciation of investments
and translation of other assets and
liabilities denominated in foreign currencies 201,396,955
-------------
NET ASSETS $ 831,418,254
=============
Shares Outstanding -- $0.10 par value 33,790,341
-------------
NET ASSET VALUE PER SHARE $ 24.61
=============
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
Investment Income:
Dividends $ 6,739,092
Interest 162,925
Less: Foreign tax withheld (975,824)
-------------
Total Income 5,926,193
-------------
Expenses:
Investment advisory fees -- Note B 3,560,691
Custodian fees 504,423
Printing expense 71,385
Audit fees 11,623
Directors' fees -- Note B 6,215
Legal fees 3,228
Insurance expense 802
Loan commitment fees -- Note F 669
Registration fees 566
Other 350
-------------
Total Expenses 4,159,952
-------------
Net Investment Income 1,766,241
-------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized gain on investments -- Note A 83,611,879
Net realized loss on foreign currency
related transactions -- Note A (2,132,487)
Net change in unrealized appreciation of
investments -- Note C (158,216,094)
Net change in unrealized depreciation from
translation of assets and liabilities
denominated in foreign currencies -- Note C 39,298
-------------
Net Realized and Unrealized Loss on
Investments and Foreign Currencies (76,697,404)
-------------
Net Decrease in Net Assets
from Operations $ (74,931,163)
=============
See notes to financial statements.
--------------------------------------------------------------------------------
109
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford International Fund
----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 2000 1999
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 1,766,241 $ 2,932,227
Net realized gain on investments and foreign currency related transactions 81,479,392 76,071,155
Net change in unrealized appreciation/(depreciation) on investments and
translation of other assets and liabilities denominated in foreign currencies (158,176,796) 183,327,012
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations (74,931,163) 262,330,394
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income -- (2,932,227)
Distributions in excess of net investment income -- (349,444)
Net realized gain on investments -- (64,946,896)
------------- -------------
Total Dividends and Distributions to Shareholders -- (68,228,567)
------------- -------------
From Capital Share Transactions:
Increase/(Decrease) in net assets from capital share transactions -- Note E (27,194,525) 59,152,053
------------- -------------
Net Increase/(Decrease) in Net Assets (102,125,688) 253,253,880
Net Assets:
Beginning of period 933,543,942 680,290,062
------------- -------------
End of period* $ 831,418,254 $ 933,543,942
============= =============
* Includes distributions in excess of net investment income of: $ (731,018) $ (2,497,259)
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
110
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 2000 ---------------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............. $ 26.78 $ 20.92 $ 18.27 $ 17.26 $ 15.37 $ 14.69
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ........... 0.05 0.10 0.13 0.15 0.15 0.16
Net realized and unrealized
gain on investments and
translation of other assets and
liabilities denominated
in foreign currencies ......... (2.22) 7.86 3.73 1.91 2.21 1.49
----------- ----------- ----------- ----------- ----------- -----------
Net increase/(decrease) from
investment operations ......... (2.17) 7.96 3.86 2.06 2.36 1.65
----------- ----------- ----------- ----------- ----------- -----------
Dividends and Distributions to
Shareholders from:
Net investment income ........... -- (0.09) (0.11) (0.15) (0.14) (0.15)
Distributions in excess of net
investment income ............. -- (0.01) (0.01) (0.15) (0.10) (0.12)
Net realized gain on investments
and foreign currency related
transactions .................. -- (2.00) (1.09) (0.75) (0.23) (0.70)
----------- ----------- ----------- ----------- ----------- -----------
Total dividends and distributions -- (2.10) (1.21) (1.05) (0.47) (0.97)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period .... $ 24.61 $ 26.78 $ 20.92 $ 18.27 $ 17.26 $ 15.37
----------- ----------- ----------- ----------- ----------- -----------
Total return* ..................... (8.10)% 39.11% 21.17% 11.93% 15.41% 11.23%
----------- ----------- ----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ............... $ 831,418 $ 933,544 $ 680,290 $ 534,711 $ 456,203 $ 317,287
Ratio of expenses to average
net assets .................... 0.93%(a) 0.96% 0.98% 0.97% 0.98% 0.99%
Ratio of net investment income
to average net assets ......... 0.40%(a) 0.40% 0.55% 0.74% 0.94% 0.97%
Portfolio turnover
rate .......................... 30% 52% 47% 51% 38% 52%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
--------------------------------------------------------------------------------
111
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
------------------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
------------------------------------------------------
Common Stocks -- 95.6%
------------------------------------------------------
Shares Value
------------------------------------------------------
Argentina -- 1.0%
Retail-Food -- 0.5%
56,500 Imp. Y Exp. Patagonia* $ 508,775
Telecommunications -- 0.5%
15,000 Telecom. Argentina Stet-France
Telecom. S.A. ADR 412,500
----------
921,275
------------------------------------------------------
Brazil -- 8.7%
Financial-Banks -- 0.6%
5,400,000 Banco Itau S.A. 474,577
Food, Beverage and Tobacco -- 1.4%
23,720 Comp. Brasileiras de Dist. ADR 762,005
29,000 Comp. Cervejaria Brahma ADR* 493,000
Gas Distribution -- 0.4%
37,600 Ultrapar Participacoes S.A. ADR 373,650
Paper Products -- 0.8%
16,870 Aracruz Celulose S.A. ADR 325,802
21,116 Votorantim Celulose e
Papel S.A. ADR 388,007
Petroleum Services -- 1.7%
48,400 Petroleo Brasileiro S.A. ADR 1,440,467
Real Estate -- 0.3%
18,100 Brazil Realty S.A. GDR 270,973
Telecommunications -- 2.6%
42,000,000 Embratel Participacoes S.A. 782,479
14,670 Embratel Participacoes
S.A. ADR 346,579
9,618 Telecom. Centro Sul
Participacoes ADR 483,571
29,714 Telecom. Norte Leste
Participacoes ADR 701,993
1,001 Telecom. Sudeste Celular
Participacoes S.A. 18
Textile-Apparel and Production -- 0.4%
136,800 Confeccoes Guararapes S.A. 379,263
Utilities-Electric and Water -- 0.5%
25,000 Comp. Energetica de Minas ADR 434,375
----------
7,656,759
------------------------------------------------------
Chile -- 1.0%
Mining -- 0.5%
87,000 Antofagasta Hldgs. 467,321
Mutual Funds -- 0.3%
8,930 Genesis Chile Fund* 252,273
Telecommunications -- 0.2%
10,200 Comp. de Telecom. de
Chile ADR* 184,875
----------
904,469
------------------------------------------------------
Colombia -- 0.2%
Retail-Food -- 0.2%
116,911 Almacenes Exito S.A. 185,098
------------------------------------------------------
Czech Republic -- 0.5%
Telecommunications -- 0.5%
26,500 Cesky Telecom A.S.* 448,118
------------------------------------------------------
Egypt -- 1.2%
Food, Beverage and Tobacco -- 1.2%
60,000 Al Ahram Beverages Co.
S.A.E. GDR* 1,030,500
------------------------------------------------------
Greece -- 2.5%
Broadcasting and Publishing -- 0.7%
19,830 Lambrakis Press S.A. 581,136
Financial-Banks -- 0.3%
6,580 Alpha Bank 259,597
Telecommunications -- 1.5%
25,800 Hellenic Telecom.
Organization S.A. (OTE) 632,149
62,600 Panafon Hellenic Telecom.
S.A.* 709,690
----------
2,182,572
------------------------------------------------------
Hong Kong -- 7.9%
Computer Systems -- 2.0%
1,812,000 Legend Hldgs. Ltd. 1,754,936
Conglomerates -- 0.3%
800,000 First Pacific Co. Ltd. 271,952
Electrical Equipment -- 0.5%
3,300,000 Yixing Xinwei Hldgs. Ltd.* 414,855
Financial-Banks -- 0.3%
160,000 Guoco Group 321,211
Real Estate -- 0.6%
49,000 Cheung Kong Hldgs. 538,997
Telecommunications -- 4.2%
244,000 China Mobile (Hong Kong) Ltd.* 2,151,882
744,000 China Unicom Ltd.* 1,569,983
----------
7,023,816
------------------------------------------------------
Hungary -- 3.0%
Chemicals -- 0.4%
11,000 BorsodChem RT* 339,719
Financial-Banks -- 1.1%
17,600 OTP Bank 917,222
Pharmaceuticals -- 0.7%
11,980 Richter Gedeon VEG 645,880
Telecommunications -- 0.8%
105,800 Matav RT 735,814
----------
2,638,635
------------------------------------------------------
India -- 7.9%
Capital Goods-Miscellaneous
Technology -- 0.4%
24,000 Rediff.com India Ltd. ADR* 336,000
Computer Software -- 5.1%
10,000 Hughes Software Systems 675,073
9,600 Infosys Technology Ltd. 1,788,599
25,000 NIIT Ltd.* 1,237,598
11,700 Satyam Computer Services Ltd. 781,476
Financial-Banks -- 1.0%
61,342 ICICI Bank Ltd.* 889,459
------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
112
<PAGE>
--------------------------------------------------------------------------------
Shares Value
------------------------------------------------------
Telecommunications -- 0.8%
65,000 Mahanagar Telephone Nigam
Ltd. GDR* $ 682,500
Telecommunications-Specialty -- 0.6%
25,000 Satyam Infoway Ltd. ADR* 556,250
-----------
6,946,955
------------------------------------------------------
Israel -- 4.1%
Business Services -- 2.1%
21,600 BATM Advanced Comm. Ltd. 1,876,001
Computer Software -- 0.8%
3,500 Check Point Software
Technologies Ltd.* 741,125
Conglomerates -- 0.6%
41,000 Clal Industries* 489,630
Electronics and Instruments -- 0.6%
19,500 Visionix Ltd.* 558,500
-----------
3,665,256
------------------------------------------------------
Malaysia -- 4.7%
Financial-Banks -- 2.2%
158,000 Commerce Asset-Hldg. Berhad 457,368
351,000 Malayan Banking Berhad 1,422,474
Food, Beverage and Tobacco -- 0.1%
90,000 JT Int'l. Berhad 102,789
Telecommunications -- 1.9%
1,600,000 Technology Resources
Inds. Berhad* 1,701,053
Utilities -- 0.5%
130,000 Tenaga Nasional 424,211
-----------
4,107,895
------------------------------------------------------
Mexico -- 12.2%
Conglomerates -- 0.8%
82,600 Alfa S.A. 188,757
11,200 Fomento Economico Mexicano ADR* 482,300
Construction Materials -- 0.8%
29,304 Cemex S.A. de C.V. ADR 684,981
Constructions -- 0.3%
231,600 Consorcio Ara S.A. de C.V.* 272,858
Financial-Banks -- 0.8%
160,000 Grupo Financiero Banamex
Accival S.A. de C.V.* 672,761
Financial Services -- 0.3%
201,400 Grupo Financiero Banorte* 278,188
Food, Beverage and Tobacco -- 0.8%
297,000 Grupo Bimbo S.A. de C.V. 467,550
222,000 Grupo Continental 225,472
Media and Entertainment -- 2.2%
293,300 Corp. Interamericana
Entretenimiento* 1,146,867
11,900 Grupo Television S.A.
de C.V. ADR* 820,356
Metals -- 0.7%
46,900 Tubos de Acero 647,816
Paper Products -- 0.7%
202,000 Kimberly Clark Mexico 574,447
Retail Trade -- 0.7%
62,400 Grupo Elektra S.A.
de C.V. GDR 639,600
Telecommunications -- 4.1%
442,000 Grupo Carso Global Telecom.* 1,261,446
41,500 Telefonos de Mexico S.A. ADR 2,370,688
-----------
10,734,087
------------------------------------------------------
Panama -- 0.4%
Financial-Banks -- 0.4%
13,800 Banco Latinoamericano de
Exportaciones S.A. 382,088
------------------------------------------------------
Peru -- 0.2%
Financial-Banks -- 0.2%
18,300 Credicorp Ltd. 164,700
------------------------------------------------------
Poland -- 1.0%
Broadcasting and Publishing -- 1.0%
32,110 Agora S.A.* 848,027
------------------------------------------------------
Russia -- 1.1%
Oil-Integrated-International -- 1.1%
20,000 Lukoil Hldg. ADR* 990,000
------------------------------------------------------
South Africa -- 2.8%
Food, Beverage and Tobacco -- 1.0%
33,000 Comp. Financiere Richemont AG* 885,188
Metals -- 1.1%
880,803 Northam Platinum 1,012,566
Mining -- 0.7%
78,000 Anglovaal Mining Ltd.* 597,789
-----------
2,495,543
------------------------------------------------------
South Korea -- 13.7%
Constructions -- 0.8%
25,797 Tae Young Corp. 673,252
Electronic Equipment -- 8.6%
83,699 Sam Hwa Electronics Co. 912,036
13,000 Samsung Electro-Mechanics Co.* 814,959
17,700 Samsung Electronics 5,857,537
Financial-Banks -- 0.6%
41,816 Kookmin Bank GDR* 534,199
Metals -- 0.7%
26,200 Pohang Iron & Steel Co.
Ltd. ADR 628,800
Telecommunications -- 1.1%
28,000 SK Telecom Ltd. ADR* 1,016,750
Utilities-Electric -- 1.9%
54,000 Korea Electric Power
Corp. ADR* 1,675,657
-----------
12,113,190
------------------------------------------------------
Taiwan -- 14.2%
Computer Services -- 1.7%
25,000 Acer Peripherals, Inc. GDR* 717,500
90,000 Trident Microsystems, Inc.* 810,000
------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
113
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
--------------------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
Shares Value
------------------------------------------------------
Electronics and Instruments -- 10.8%
195,942 Accton Technology Corp. GDR* $ 862,146
92,480 Asustek Computer, Inc. 764,521
147,000 Hon Hai Precision* 1,330,057
275,184 Taiwan Secom 420,053
376,754 Taiwan Semiconductor* 1,790,271
344,640 United Micro Electronic* 959,047
52,000 Via Technologies, Inc.* 803,906
48,840 Winbond Electronic Corp. GDR* 1,404,150
143,000 Yageo Corp. GDR* 1,172,600
Financial-Banks -- 0.0%
101 ICBC 85
Financial Services -- 0.6%
424,200 China Development Industrial
Bank* 566,060
Transportation -- 1.1%
100,000 Evergreen Marine Corp. GDR* 982,500
-----------
12,582,896
------------------------------------------------------
Thailand -- 2.0%
Real Estate -- 0.3%
1,523,300 Golden Land Ppty.* 233,307
Telecommunications -- 1.7%
380,000 Total Access Comm.
Public Co.* 1,527,600
-----------
1,760,907
------------------------------------------------------
Turkey -- 4.6%
Broadcasting and Publishing -- 1.7%
47,450,000 Dogan Yayin Hldg. A.S.* 803,051
73,205,400 Hurriyet Gazetecilik ve
Matbaacilik A.S.* 707,965
Electronic Equipment -- 1.0%
3,021,000 Vestel Elektronik Sanayi
ve Ticaret A.S.* 912,998
Financial-Banks -- 0.9%
267,900 Haci Omer Sabanci Hldgs.
S.A. ADR 783,608
Retail-Appliances -- 1.0%
17,719,000 Arcelik A.S. 871,077
-----------
4,078,699
------------------------------------------------------
Venezuela -- 0.7%
Telecommunications -- 0.7%
21,000 Comp. Anonima Nacional
Telefonos de Venezuela ADR 570,938
------------------------------------------------------
Total Common Stocks
(Cost $69,406,080) 84,432,423
------------------------------------------------------
---------------------------------------------------------
Preferred Stocks -- 1.2%
---------------------------------------------------------
Shares Value
---------------------------------------------------------
10,400 Comp. Vale do Rio Doce* $ 293,518
94,000 Confeccoes Guararapes S.A. 255,392
533,893 Itausa -- Investimentos Itau S.A. 518,055
---------------------------------------------------------
Total Preferred Stocks
(Cost $933,303) 1,066,965
---------------------------------------------------------
--------------------------------------------------------------------
Repurchase Agreement -- 2.6%
--------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------
$ 2,297,000 State Street Bank & Trust Co.
repurchase agreement,
dated 6/30/00, maturity value
$2,298,005 at 5.25% due 7/3/00(1)
(Cost $2,297,000) $ 2,297,000
--------------------------------------------------------------------
Total Investments -- 99.4%
(Cost $72,636,383) 87,796,388
Cash, Receivables and Other
Assets Less Liabilities -- 0.6% 542,849
--------------------------------------------------------------------
Net Assets -- 100.0% $ 88,339,237
--------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
Glossary of terms:
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
114
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments, at market (cost $72,636,383) $ 87,796,388
Cash 389
Foreign currency (cost $1,868,737) 1,878,410
Dividends receivable 232,575
Receivable for fund shares sold 6,067
Dividend reclaims receivable 757
Interest receivable 335
Other assets 83
------------
TOTAL ASSETS 89,915,004
------------
LIABILITIES
Accrued foreign capital gains tax 950,605
Payable for securities purchased 462,512
Accrued expenses 139,307
Payable for fund shares redeemed 23,343
------------
TOTAL LIABILITIES 1,575,767
------------
NET ASSETS $ 88,339,237
============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 726,450
Additional paid-in capital 74,218,300
Distributions in excess of net investment income (1,236,600)
Accumulated net realized loss on
investments and foreign currency
related transactions (511,994)
Net unrealized appreciation of investments
and translation of other assets and
liabilities denominated in foreign currencies 15,143,081
------------
NET ASSETS $ 88,339,237
============
Shares Outstanding -- $0.10 par value 7,264,500
------------
NET ASSET VALUE PER SHARE $ 12.16
============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Dividends $ 616,310
Interest 63,319
Less: Foreign tax withheld (50,826)
------------
Total Income 628,803
------------
Expenses:
Investment advisory fees-- Note B 483,651
Custodian fees 117,753
Audit fees 11,623
Printing expense 7,458
Directors' fees-- Note B 6,215
Registration fees 994
Legal fees 506
Loan commitment fees-- Note F 71
Insurance expense 69
Other 350
------------
Total Expenses 628,690
------------
Net Investment Income 113
------------
Realized and Unrealized Gain/(Loss) on
Investments and Foreign Currencies -- Note C
Net realized gain on investments -- Note A 10,168,416
Net realized loss on foreign currency related
transactions -- Note A (49,170)
Foreign capital gains tax (81,507)
Net change in unrealized appreciation of
investments -- Note C (14,809,211)
Net change in unrealized depreciation from
translation of other assets and liabilities
denominated in foreign currencies -- Note C (9,497)
------------
Net Realized and Unrealized Loss on
Investments and Foreign Currencies (4,780,969)
------------
Net Decrease in Net Assets
from Operations $ (4,780,856)
============
See notes to financial statements.
--------------------------------------------------------------------------------
115
<PAGE>
--------------------------------------------------------------------------------
Baillie Gifford Emerging Markets Fund
-------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 200 1999
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 113 $ 72,405
Net realized gain on investments and foreign currency related transactions 10,037,739 2,737,439
Net change in unrealized appreciation/(depreciation) on investments and
translation of other assets and liabilities denominated in foreign currencies (14,818,708) 34,296,056
------------ ------------
Net Increase/(Decrease) in Net Assets from Operations (4,780,856) 37,105,900
------------ ------------
From Capital Share Transactions:
Increase in net assets from capital share transactions -- Note E 863,669 4,486,963
------------ ------------
Net Increase/(Decrease) in Net Assets (3,917,187) 41,592,863
Net Assets:
Beginning of period 92,256,424 50,663,561
------------ ------------
End of period* $ 88,339,237 $ 92,256,424
============ ============
* Includes distributions in excess of net investment income of: $ (1,236,600) $ (1,236,713)
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
116
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31, (Audited)
June 30, 2000 -----------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........................... $ 12.73 $ 7.39 $ 10.17 $ 10.54 $ 8.46 $ 8.68
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income ....................... 0.01 0.01 0.09 0.09 0.07 0.07
Net realized and unrealized gain on
investments and translation of other
assets and liabilities denominated in
foreign currency .......................... (0.58) 5.33 (2.81) 0.12 2.01 (0.12)
------- ------- ------- ------- ------- -------
Net increase/(decrease) from investment
operations ................................ (0.57) 5.34 (2.72) 0.21 2.08 (0.05)
------- ------- ------- ------- ------- -------
Dividends and Distributions
to Shareholders from:
Net investment income ....................... -- -- -- (0.06) -- (0.07)
Distributions in excess of
net investment income ..................... -- -- -- -- -- (0.10)
Net realized gain on investments and
foreign currency related transactions ..... -- -- -- (0.33) -- --
In excess of net realized gain on investments -- -- -- (0.19) -- --
Tax return of capital ....................... -- -- (0.06) -- -- --
------- ------- ------- ------- ------- -------
Total dividends and distributions ........... -- -- (0.06) (0.58) -- (0.17)
------- ------- ------- ------- ------- -------
Net asset value, end of period .................. $ 12.16 $ 12.73 $ 7.39 $ 10.17 $ 10.54 $ 8.46
------- ------- ------- ------- ------- -------
Total return* ................................... (4.48)% 72.26% (26.77)% 1.97% 24.59% (0.60)%
------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000's omitted) ... $88,339 $92,256 $50,664 $87,014 $67,062 $34,218
Ratio of expenses to average net assets ..... 1.30%(a) 1.44% 1.49% 1.40% 1.53% 1.67%
Ratio of net investment income to average
net assets ................................ (0.00)%(a) 0.12% 1.16% 0.76% 0.85% 0.89%
Portfolio turnover rate ..................... 40% 96% 69% 64% 46% 52%
</TABLE>
* Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(a) Annualized.
See notes to financial statements.
--------------------------------------------------------------------------------
117
<PAGE>
--------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
---------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Common Stocks -- 93.6%
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Aerospace and Defense -- 0.3%
23,800 Newport News Shipbuilding Corp. $ 874,650
--------------------------------------------------------------------------------
Air Transportation -- 0.5%
24,500 Atlantic Coast Airlines Hldgs.* 777,875
19,900 SkyWest, Inc. 737,544
-----------
1,515,419
--------------------------------------------------------------------------------
Auto-Replacement Parts -- 0.2%
14,700 Danaher Corp. 726,731
--------------------------------------------------------------------------------
Biotechnology -- 3.8%
4,100 Affymetrix, Inc.* 677,013
15,600 Alkermes, Inc.* 735,150
18,100 Celgene Corp.* 1,065,637
15,000 Cephalon, Inc.* 898,125
23,200 Enzon, Inc.* 986,000
82,100 Genomic Solutions, Inc.* 1,200,713
7,300 Human Genome Sciences, Inc.* 973,637
11,700 Millenium Pharmaceuticals, Inc.* 1,308,937
27,700 Pharmacopeia, Inc.* 1,284,588
33,000 PRAECIS Pharmaceuticals, Inc.* 919,875
8,200 Sepracor, Inc.* 989,125
19,300 SuperGen, Inc.* 699,625
-----------
11,738,425
--------------------------------------------------------------------------------
Broadcasting -- 4.3%
26,100 Adelphia Comm. Corp.* 1,223,438
74,800 Charter Comm., Inc.* 1,229,525
62,800 Citadel Comm. Corp.* 2,194,075
37,238 Cox Comm., Inc.* 1,696,656
51,900 Cox Radio, Inc.* 1,453,200
25,200 Entercom Comm. Corp.* 1,228,500
32,900 Hispanic Broadcasting Corp.* 1,089,813
18,900 OpenTV Corp.* 848,138
53,300 Radio One, Inc.* 1,575,681
49,500 Spanish Broadcasting Systems, Inc.* 1,017,844
-----------
13,556,870
--------------------------------------------------------------------------------
Building Materials and Homebuilders -- 0.6%
21,300 Martin Marietta Materials, Inc. 861,319
14,900 Southdown, Inc. 860,475
-----------
1,721,794
--------------------------------------------------------------------------------
Chemicals -- 1.8%
52,900 Cabot Corp. 1,441,525
20,100 Cabot Microelectronics Corp.* 919,575
81,600 Cadiz, Inc.* 652,800
38,200 Lubrizol Corp.* 802,200
29,900 Spartech Corp. 807,300
19,800 Symyx Technologies, Inc.* 843,666
-----------
5,467,066
--------------------------------------------------------------------------------
Computer Software -- 10.2%
19,000 Agile Software Corp.* 1,343,062
12,800 Akamai Technologies, Inc.* 1,519,800
25,400 BEA Systems, Inc.* 1,255,713
31,800 BroadVision, Inc.* 1,615,837
19,600 Inet Technologies, Inc.* 1,063,300
10,800 Inktomi Corp.* 1,277,100
39,400 Intertrust Technologies Corp.* 810,162
13,800 Interwoven, Inc.* 1,517,784
19,350 Kana Comm., Inc.* 1,197,281
29,900 Macromedia, Inc.* 2,890,956
12,200 Mercury Interactive Corp.* 1,180,350
9,000 Micromuse, Inc.* 1,489,359
24,800 Portal Software, Inc.* 1,584,100
11,000 Rational Software Corp.* 1,022,313
16,000 RealNetworks, Inc.* 809,000
19,000 Remedy Corp.* 1,063,109
18,500 Selectica, Inc.* 1,296,156
13,900 TIBCO Software, Inc.* 1,490,558
37,900 Ulticom, Inc.* 910,192
22,800 VeriSign, Inc.* 4,024,200
23,600 Vitria Technology, Inc.* 1,442,550
6,700 webMethods, Inc.* 1,053,156
-----------
31,856,038
--------------------------------------------------------------------------------
Computer Systems -- 5.4%
10,800 Comverse Technology, Inc. 1,004,400
17,400 Entrust Technologies, Inc.* 1,439,850
51,400 Finisar Corp.* 1,346,037
35,400 Henry Jack & Associates, Inc. 1,774,425
15,400 M-Systems Flash Disk Pioneers Ltd.* 1,199,275
43,800 Network Appliance, Inc.* 3,525,900
21,800 NVIDIA Corp.* 1,385,662
41,100 QLogic Corp.* 2,715,169
17,300 SanDisk Corp.* 1,058,544
26,400 WatchGuard Technologies, Inc.* 1,450,350
-----------
16,899,612
--------------------------------------------------------------------------------
Drugs and Hospitals -- 7.1%
14,200 Allergan, Inc. 1,057,900
23,700 Alpharma, Inc. 1,475,325
23,200 Andrx Corp.* 1,482,988
23,400 Biovail Corp.* 1,297,238
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
118
<PAGE>
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
35,100 First Health Group Corp.* $ 1,151,719
10,400 IDEC Pharmaceuticals Corp.* 1,220,050
62,600 IVAX Corp.* 2,597,900
51,000 Jones Pharma, Inc. 2,036,813
28,650 King Pharmaceuticals, Inc.* 1,257,019
34,700 K-V Pharmaceutical Co.* 919,550
17,600 Laboratory Corp. of America Hldgs.* 1,357,400
18,800 Medicis Pharmaceutical Corp.* 1,071,600
67,500 Mylan Laboratories, Inc. 1,231,875
38,000 Tenet Healthcare Corp. 1,026,000
36,600 Teva Pharmaceutical Industries Ltd. 2,029,013
8,300 Waters Corp.* 1,035,944
-----------
22,248,334
--------------------------------------------------------------------------------
Electrical Equipment -- 4.0%
63,500 DDi Corp.* 1,809,750
45,916 Flextronics Int'l.* 3,153,855
33,800 Plexus Corp.* 3,819,400
19,000 RadiSys Corp.* 1,096,458
17,200 Sanmina Corp.* 1,470,600
31,400 SCI Systems, Inc.* 1,230,487
-----------
12,580,550
--------------------------------------------------------------------------------
Electronics-Semiconductors -- 4.4%
32,100 Advanced Micro Devices, Inc.* 2,479,725
14,500 Burr-Brown Corp.* 1,256,969
7,000 Cree, Inc.* 934,500
22,500 Integrated Device Technology, Inc.* 1,347,187
34,000 Intersil Hldg. Corp.* 1,838,125
23,000 Int'l. Rectifier Co.* 1,288,000
22,200 Quantum Effect Devices, Inc.* 1,265,400
48,000 SCG Hldg. Corp.* 1,050,000
19,000 Silicon Laboratories, Inc.* 1,009,375
14,700 Silicon Storage Technology, Inc.* 1,298,194
-----------
13,767,475
--------------------------------------------------------------------------------
Financial-Banks -- 4.0%
60,200 BB&T Corp. 1,437,275
28,500 City Nat'l. Corp. 990,375
30,200 Comerica, Inc. 1,355,225
31,290 Commerce Bancorp, Inc. 1,439,340
62,800 Compass Bancshares, Inc. 1,071,525
72,200 Hibernia Corp.* 785,175
25,700 Hudson United Bancorp 576,644
29,000 Silicon Valley Bancshares* 1,236,125
32,000 Southtrust Corp. 724,000
52,800 Southwest Bancorp of Texas, Inc.* 1,095,600
40,300 TCF Financial Corp. 1,035,206
44,300 Wintrust Financial Corp.* 683,881
-----------
12,430,371
--------------------------------------------------------------------------------
Financial-Other -- 3.5%
67,100 American Capital Strategies Ltd. 1,602,013
37,400 BlackRock, Inc.* 1,084,600
44,000 Countrywide Credit Industries, Inc.* 1,333,750
34,300 InterCept Group, Inc.* 583,100
12,500 Investment Technology Group, Inc.* 493,750
28,500 Legg Mason, Inc. 1,425,000
43,300 Metris Cos., Inc. 1,087,913
24,400 Neuberger Berman, Inc. 1,134,600
44,600 Raymond James Financial, Inc.* 1,003,500
34,400 Waddell & Reed Financial, Inc.* 1,128,750
-----------
10,876,976
--------------------------------------------------------------------------------
Financial-Thrift -- 2.0%
24,500 Bank United Corp. 862,094
59,400 Banknorth Group, Inc. 909,563
36,800 Charter One Financial, Inc.* 846,400
44,100 Dime Bancorp, Inc. 694,575
56,700 Golden State Bancorp, Inc.* 1,020,600
30,300 Golden West Financial Corp. 1,236,619
32,500 Richmond County Financial Corp. 621,562
-----------
6,191,413
--------------------------------------------------------------------------------
Food, Beverage and Tobacco -- 0.9%
28,700 Adolph Coors Co. 1,736,350
28,000 McCormick & Co., Inc. 910,000
-----------
2,646,350
--------------------------------------------------------------------------------
Insurance -- 0.4%
15,000 Allmerica Financial Corp.* 785,625
21,300 Protective Life Corp.* 567,112
-----------
1,352,737
--------------------------------------------------------------------------------
Machinery and Equipment -- 0.5%
12,400 Eaton Corp. 830,800
25,600 Fluor Corp. 809,600
-----------
1,640,400
--------------------------------------------------------------------------------
Merchandising-Special -- 1.6%
53,000 BJ's Wholesale Club, Inc.* 1,749,000
50,200 United Stationers, Inc.* 1,625,225
44,800 Zale Corp.* 1,635,200
-----------
5,009,425
--------------------------------------------------------------------------------
Miscellaneous-Capital Goods -- 1.5%
20,200 American Standards Cos., Inc.* 828,200
19,000 Amphenol Corp.* 1,257,562
29,100 Mettler-Toledo Int'l., Inc.* 1,164,000
13,600 Millipore Corp. 1,025,100
7,300 PerkinElmer, Inc.* 470,888
-----------
4,745,750
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
119
<PAGE>
--------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
---------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
Shares Value
--------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Cyclical -- 0.7%
12,100 Diamond Technology Partners, Inc.* $ 1,064,800
44,100 NetRatings, Inc.* 1,130,063
-----------
2,194,863
--------------------------------------------------------------------------------
Miscellaneous-Consumer Growth Staples -- 1.4%
25,600 Lamar Advertising Co.* 1,108,800
13,600 Learning Tree Int'l.* 833,000
65,000 Optimal Robotics Corp.* 2,494,375
-----------
4,436,175
--------------------------------------------------------------------------------
Oil and Gas Producing -- 1.0%
34,800 Burlington Resources, Inc. 1,331,100
31,600 Louis Dreyfus Natural Gas Corp.* 989,475
15,700 Stone Energy Corp.* 938,075
-----------
3,258,650
--------------------------------------------------------------------------------
Oil and Gas Services -- 2.9%
45,100 B.J. Svcs. Co.* 2,818,750
17,200 Cooper Cameron Corp.* 1,135,200
33,000 Maverick Tube Corp.* 961,125
28,900 Santa Fe Int'l. Corp. 1,009,694
13,000 Smith Int'l., Inc.* 946,563
41,400 Veritas DGC, Inc.* 1,076,400
28,900 Weatherford Int'l., Inc.* 1,150,581
-----------
9,098,313
--------------------------------------------------------------------------------
Publishing-News -- 0.3%
16,700 Central Newspapers, Inc.* 1,056,275
--------------------------------------------------------------------------------
Semiconductors -- 1.0%
44,100 AVX Corp. 1,011,544
38,300 Kemet Corp.* 959,894
28,700 Vishay Intertechnology, Inc.* 1,088,806
-----------
3,060,244
--------------------------------------------------------------------------------
Semiconductors-Communications -- 8.5%
31,600 Applied Micro Circuits Corp.* 3,120,500
13,200 AudioCodes Ltd.* 1,584,000
23,100 Centillium Comm., Inc.* 1,593,900
27,200 Cypress Semiconductor Corp.* 1,149,200
19,950 Exar Corp. 1,739,391
9,900 GlobeSpan, Inc.* 1,208,573
18,900 Marvell Technology Group Ltd.* 1,077,300
25,400 Metalink Ltd.* 752,475
22,200 Micrel, Inc.* 964,312
13,700 RF Micro Devices, Inc.* 1,200,462
14,500 Semtech Corp.* 1,109,023
26,000 Silicon Image, Inc.* 1,296,750
27,450 Transwitch Corp.* 2,118,797
10,000 TriQuint Semiconductor, Inc.* 956,875
44,000 Virata Corp.* 2,623,500
49,300 Xilinx, Inc.* 4,070,331
-----------
26,565,389
--------------------------------------------------------------------------------
Semiconductors-Equipment -- 2.2%
19,000 Advanced Energy Industries, Inc.* 1,119,813
19,200 Credence Systems Corp.* 1,059,600
20,800 Helix Technology Corp. 811,200
32,800 KLA-Tencor Corp.* 1,920,850
25,500 Lam Research Corp.* 956,250
22,300 Numerical Technologies, Inc.* 1,084,337
-----------
6,952,050
--------------------------------------------------------------------------------
Telecommunications-Equipment -- 10.8%
23,600 Accelerated Networks, Inc.* 995,625
7,500 Aether Systems, Inc.* 1,537,500
21,500 American Tower Corp.* 896,281
9,600 Avanex Corp.* 916,800
22,400 Bookham Technology PLC* 1,327,200
16,974 Cisco Systems, Inc.* 1,078,935
44,000 CommScope, Inc.* 1,804,000
10,800 Copper Mountain Networks, Inc.* 951,750
24,800 Crown Castle Corp. Int'l.* 905,200
36,000 Dycom Industries, Inc.* 1,656,000
12,200 E Tek Dynamics, Inc.* 3,218,513
6,300 EXFO Electro-Optical Engr., Inc.* 163,800
15,960 JDS Uniphase Corp.* 1,913,205
11,400 Juniper Networks, Inc.* 1,659,413
17,600 Metasolv Software, Inc.* 774,400
29,200 Netro Corp.* 1,675,350
15,300 New Focus, Inc.* 1,256,512
17,200 Pinnacle Hldgs., Inc. * 928,800
19,800 Powerwave Technologies, Inc.* 871,200
12,700 Redback Networks, Inc.* 2,260,600
18,200 Scientific Atlanta, Inc. 1,355,900
8,100 SDL, Inc.* 2,310,019
33,800 Spectrasite Hldgs., Inc.* 959,075
31,800 Stratos Lightwave, Inc.* 886,425
9,000 Turnstone Systems, Inc.* 1,491,047
-----------
33,793,550
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
120
<PAGE>
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Telecommunications-Specialty -- 6.2%
26,900 Critical Path, Inc.* $ 1,568,606
32,300 CTC Comm. Group, Inc.* 1,162,800
67,000 Exodus Comm., Inc.* 3,086,187
14,300 InfoSpace, Inc.* 790,075
61,100 Metromedia Fiber Network, Inc.* 2,424,906
22,200 Next Level Comm., Inc.* 1,903,650
39,000 Nextel Partners, Inc.* 1,269,938
20,300 PanAmSat Corp.* 886,856
11,400 Phone.com, Inc.* 742,425
34,800 Primus Telecomm. Group, Inc.* 865,650
12,000 Sycamore Networks, Inc.* 1,324,500
24,000 Telecorp PCS, Inc.* 967,500
13,900 Time Warner Telecom, Inc. 894,812
25,600 Triton PCS Hldgs., Inc.* 1,478,400
------------
19,366,305
--------------------------------------------------------------------------------
Truckers -- 0.2%
49,500 Swift Transportation, Inc.* 693,000
--------------------------------------------------------------------------------
Utilities-Electric -- 1.0%
26,600 Calpine Corp.* 1,748,950
32,100 Energy East Corp. 611,906
41,700 Philadelphia Subn. Corp. 854,850
------------
3,215,706
--------------------------------------------------------------------------------
Utilities-Gas and Pipeline -- 0.4%
15,700 Equitable Res., Inc. 757,525
12,600 National Fuel Gas Co. 614,250
------------
1,371,775
--------------------------------------------------------------------------------
Total Common Stocks
(Cost $194,416,258) 292,908,681
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Repurchase Agreement -- 8.5%
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
$26,566,000 State Street Bank & Trust Co.
repurchase agreement, dated
6/30/00, maturity value $26,580,501
at 6.55% due 7/3/00(1)
(Cost $26,566,000) $ 26,566,000
--------------------------------------------------------------------------------
Total Investments -- 102.1%
(Cost $220,982,258) 319,474,681
Liabilities in Excess of Cash, Receivables
and Other Assets -- (2.1)% (6,634,801)
--------------------------------------------------------------------------------
Net Assets -- 100.0% $ 312,839,880
--------------------------------------------------------------------------------
(1) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
121
<PAGE>
--------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
---------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS
Investments, at market (cost $220,982,258) $ 319,474,681
Cash 802
Receivable for securities sold 5,141,051
Receivable for fund shares sold 213,292
Dividends receivable 75,687
Interest receivable 4,833
Other assets 424
-------------
TOTAL ASSETS 324,910,770
-------------
LIABILITIES
Payable for securities purchased 11,864,387
Accrued expenses 21,177
Payable for fund shares redeemed 242
Due to affiliates 185,084
-------------
TOTAL LIABILITIES 12,070,890
-------------
NET ASSETS $ 312,839,880
=============
COMPONENTS OF NET ASSETS
Capital stock, at par $ 1,628,262
Additional paid-in capital 209,255,055
Distribution in excess of net investment income (22,875)
Accumulated net realized gain
on investments 3,487,015
Net unrealized appreciation of investments 98,492,423
-------------
NET ASSETS $ 312,839,880
=============
Shares Outstanding -- $0.10 par value 16,282,620
-------------
NET ASSET VALUE PER SHARE $ 19.21
=============
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
Investment Income:
Dividends $ 420,797
Interest 717,542
Less: Foreign tax withheld (1,005)
------------
Total Income 1,137,334
------------
Expenses:
Investment advisory fees -- Note B 1,079,386
Custodian fees 45,186
Printing expense 16,904
Audit fees 9,883
Directors' fees -- Note B 6,215
Registration fees 1,079
Legal fees 638
Insurance expense 210
Loan commitment fees -- Note F 209
Deferred organization expense 149
Other 350
------------
Total Expenses 1,160,209
------------
Net Investment Loss (22,875)
------------
Realized and Unrealized Gain/(Loss)
on Investments -- Note C
Net realized gain on investments -- Note A 14,844,134
Net change in unrealized appreciation of
investments -- Note C 15,447,094
------------
Net Realized and Unrealized Gain
on Investments 30,291,228
------------
Net Increase in Net Assets
from Operations $ 30,268,353
============
See notes to financial statements.
--------------------------------------------------------------------------------
122
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 2000 1999
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS
From Operations:
Net investment income/(loss) $ (22,875) $ 325,784
Net realized gain on investments 14,844,134 684,433
Net change in unrealized appreciation of investments 15,447,094 64,256,789
------------- -------------
Net Increase/(Decrease) in Net Assets from Operations 30,268,353 65,267,006
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income -- (283,666)
Tax return of capital -- (43,726)
------------- -------------
Total Dividends and Distributions to Shareholders -- (327,392)
------------- -------------
From Capital Share Transactions:
Increase/(Decrease) in net assets from capital share transactions -- Note E 24,152,301 (113,289)
------------- -------------
Net Increase in Net Assets 54,420,654 64,826,325
Net Assets:
Beginning of period 258,419,226 193,592,901
------------- -------------
End of period* $ 312,839,880 $ 258,419,226
============= =============
* Includes distributions in excess of net investment income of: $ (22,875) $ --
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
123
<PAGE>
--------------------------------------------------------------------------------
The Guardian Small Cap Stock Fund
---------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months April 2, 1997*
Ended Year Ended December 31, (Audited) to December 31,
June 30, 2000 --------------------------------- 1997
(Unaudited) 1999 1998 (Audited)
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ................. $ 17.18 $ 12.74 $ 13.63 $ 10.00
----------- ----------- ----------- -----------
Income from investment
operations:
Net investment
income ............................ -- 0.02 0.01 0.03
Net realized and
unrealized gain/
(loss) on investments ............. 2.03 4.44 (0.79) 3.80
----------- ----------- ----------- -----------
Net increase/(decrease)
from investment
operations ........................ 2.03 4.46 (0.78) 3.83
----------- ----------- ----------- -----------
Dividends and Distributions
to Shareholders from:
Net investment income ............... -- (0.02) (0.01) (0.03)
Net realized gain ................... -- -- (0.10) (0.17)
----------- ----------- ----------- -----------
Total dividends and
distributions ..................... -- (0.02) (0.11) (0.20)
----------- ----------- ----------- -----------
Net asset value, end of
period .............................. $ 19.21 $ 17.18 $ 12.74 $ 13.63
----------- ----------- ----------- -----------
Total return(a) ....................... 11.70% 35.04% (5.75)% 38.32%
----------- ----------- ----------- -----------
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ................... $ 312,840 $ 258,419 $ 193,593 $ 87,749
Ratio of expenses to
average net assets ................ 0.81%(b) 0.83% 0.89% 0.96%(b)
Ratio of net investment
income/(loss) to average net assets (0.02)%(b) 0.17% 0.17% 0.48%(b)
Portfolio turnover
rate .............................. 65% 100% 59% 22%
</TABLE>
* Commencement of operations.
(a) Total returns do not reflect the effects of charges deducted pursuant to
the terms of GIAC's variable contracts. Inclusion of such charges would
reduce the total returns for all periods shown.
(b) Annualized.
See notes to financial statements.
--------------------------------------------------------------------------------
124
<PAGE>
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
125
<PAGE>
--------------------------------------------------------------------------------
GIAC Funds, Inc. (including: Baillie Gifford
International Fund, Baillie Gifford Emerging Markets
Fund and The Guardian Small Cap Stock Fund)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
----------------------------------------------
Note A -- Organization and Accounting Policies
----------------------------------------------
GIAC Funds, Inc. (the Company) is a diversified open-end management
investment company registered under the Investment Company Act of 1940, as
amended (1940 Act), which was incorporated in Maryland on October 29, 1990.
Shares of the Company are offered in three series: Baillie Gifford International
Fund (BGIF), Baillie Gifford Emerging Markets Fund (BGEMF) and The Guardian
Small Cap Stock Fund (GSCSF). The series are collectively referred to herein as
the "Funds". Shares of the Funds are only sold to certain separate accounts of
The Guardian Insurance & Annuity Company, Inc. (GIAC). GIAC is a wholly-owned
subsidiary of The Guardian Life Insurance Company of America (Guardian Life).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Valuation of Investments
Securities listed on foreign exchanges and for which market quotations are
readily available are valued at the closing price on the exchange on which the
securities are traded at the close of the appropriate exchange or, if there have
been no sales during the day, at the mean of the closing bid and asked prices.
Securities traded in the over-the-counter market are valued at the mean between
the bid and asked prices. Securities listed or traded on any domestic (U.S.)
exchanges are valued at the last sale price or, if there have been no sales
during the day, at the mean of the closing bid and asked prices. Securities for
which market quotations are not readily available, including restricted
securities and illiquid assets, are valued at fair value as determined in good
faith by or under the direction of the Company's Board of Directors. Investing
outside of the U.S. may involve certain considerations and risks not typically
associated with domestic investments, including: the possibility of political
and economic unrest and different levels of governmental supervision and
regulation of foreign securities markets.
Repurchase agreements are carried at cost which approximates market value
(See Note D).
Foreign Currency Translation
The books and records of the Funds are maintained in U.S. dollars as
follows:
(1) The foreign currency market value of investment securities and other
assets and liabilities stated in foreign currencies are translated into U. S.
dollars at the current rate of exchange.
(2) Purchases, sales, income and expenses are translated at the rate of
exchange prevailing on the respective dates of such transactions.
The resulting gains and losses are included in the Statement of Operations
as follows:
Realized foreign exchange gains and losses, which result from changes in
foreign exchange rates between the date on which the Funds earn dividends and
interest or pay foreign withholding taxes or other expenses and the date on
which U.S. dollar equivalent amounts are actually received or paid, are included
in net realized gain or loss on foreign currency related transactions. Realized
foreign exchange gains and losses which result from changes in foreign exchange
rates between the trade and settlement dates on security and currency
transactions are also included in net realized gains or losses on foreign
currency related transactions. Net currency gains and losses from valuing other
assets and liabilities denominated in foreign currency at the period end
exchange rate are reflected in net change in unrealized appreciation or
depreciation from translation of other assets and liabilities denominated in
foreign currencies.
Forward Foreign Currency Contracts
The Funds may enter into forward foreign currency contracts in connection
with planned purchases or sales of securities, or to hedge against changes in
currency exchange rates affecting the values of securities denominated in a
particular currency. A forward foreign currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Fluctuations in the value of forward foreign currency exchange contracts
are recorded for book purposes as
--------------------------------------------------------------------------------
126
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
unrealized gains or losses on foreign currency related transactions by the
Funds. When forward contracts are closed, the Funds record realized gains or
losses equal to the differences between the values of such forward contracts at
the time each was opened and the value at the time each was closed. Such amounts
are recorded in net realized gain or loss on foreign currency related
transactions. None of the Funds will enter into a forward foreign currency
contract if such contract would obligate the Funds to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency.
Futures Contracts
BGIF and BGEMF may enter into financial futures contracts for the delayed
delivery of securities, currency or contracts based on financial indices at a
fixed price on a future date. In entering into such contracts, the Funds are
required to deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or received by
the Funds each day, depending on the daily fluctuations in the value of the
underlying security, and are recorded for financial statement purposes as
unrealized gains or losses by the Funds. The Funds' investments in financial
futures contracts are designed to hedge against anticipated future changes in
interest or exchange rates or securities prices (or for non-hedging purposes).
Should interest or exchange rates or securities prices move unexpectedly, the
Fund may not achieve the anticipated benefits of the financial futures contracts
and may realize a loss.
Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Net realized gains
or losses on sales of investments are determined on an identified cost basis.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on an accrual basis.
Taxes
Each Fund intends to continue to qualify to be taxed as a "regulated
investment company" under the provisions of the Internal Revenue Code (Code),
and as such will not be subject to federal income tax on income (including any
realized capital gains) which is distributed to its shareholders in accordance
with the provisions of the Code. Therefore, no federal income tax provision is
required. Losses on security transactions arising after October 31 are treated
as arising on the first day of the Funds' next fiscal year.
Withholding taxes on foreign interest, dividends and capital gains in the
BGIF and BGEMF have been provided for in accordance with the applicable
country's tax rules and rates.
Investment income received from investments in foreign currencies may be
subject to foreign withholding tax. Whenever possible, the Funds will attempt to
operate so as to qualify for reduced tax rates or tax exemptions in those
countries with which the United States has a tax treaty.
Dividends and Distributions to Shareholders
The Funds intend to distribute each year, as dividends, substantially all
net investment income and net realized capital gains. All such dividends or
distributions are credited in the form of additional shares of the Funds at net
asset value on the ex-dividend date. Such distributions are determined in
conformity with federal income tax regulations. Differences between the
recognition of income on an income tax basis and recognition of income based on
generally accepted accounting principles may cause temporary overdistributions
of net realized gains and net investment income. Currently, the Funds' policy is
to distribute net investment income approximately every six months and net
capital gains once a year. This policy is, however, subject to change at any
time by the Company's Board of Directors.
Reclassifications of Capital Accounts
The treatment for financial statement purposes of distributions made
during the year from net investment income and net realized gains may differ
from their ultimate treatment for federal income tax purposes. These differences
primarily are caused by differences in the timing of the recognition of certain
components of income or capital gain; and the recharacterization of foreign
exchange gains or losses to either ordinary income or realized capital gains for
federal income tax purposes.
--------------------------------------------------------------------------------
127
<PAGE>
--------------------------------------------------------------------------------
GIAC Funds, Inc. (including: Baillie Gifford
International Fund, Baillie Gifford Emerging Markets
Fund and The Guardian Small Cap Stock Fund)
----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
Where such differences are permanent in nature, they are reclassified in the
components of net assets based on their ultimate characterization for federal
income tax purposes. Any such reclassifications will have no effect on net
assets, results of operations, or net asset value per share of the Funds.
--------------------------------------------------------------------------
Note B -- Investment Management Agreements and Payments to Related Parties
--------------------------------------------------------------------------
BGIF and BGEMF have an investment management agreement with Guardian
Baillie Gifford Limited (GBG), a Scottish corporation formed through a joint
venture between GIAC and Baillie Gifford Overseas Limited (BG Overseas). GBG is
responsible for the overall investment management of the Funds' portfolios
subject to the supervision of the Company's Board of Directors. GBG has entered
into sub-investment management agreements with BG Overseas pursuant to which BG
Overseas is responsible for the day-to-day management of BGIF and BGEMF. GBG
continually monitors and evaluates the performance of BG Overseas.
As compensation for its services, GBG receives a management fee computed
at the annual rate of .80% of BGIF's average daily net assets and 1.00% of
BGEMF's average daily net assets. One-half of these fees (.40% relating to BGIF
and .50% relating to BGEMF) are payable by GBG to BG Overseas for its services.
Payment of the sub-investment management fees does not represent a separate or
additional expense to the Funds.
GSCSF has an investment advisory agreement with Guardian Investor Services
Corporation (GISC), a wholly-owned subsidiary of GIAC. GISC receives a
management fee from GSCSF at an annual rate of .75% of its average daily net
assets.
No compensation is paid by the Company to a director who is deemed to be
an "interested person" (as defined in the 1940 Act) of the Company. Each
director not deemed an "interested person" is paid an annual fee of $500 and
$350 for attendance at each meeting of the Company.
---------------------------------
Note C -- Investment Transactions
---------------------------------
Purchases and proceeds from sales of securities (excluding short-term
securities) for the six months ended June 30, 2000 were as follows:
BGIF BGEMF GSCSF
---- ----- -----
Purchases ............. $261,167,498 $ 36,566,102 $201,370,520
Proceeds .............. $274,875,946 $ 38,682,334 $171,911,387
The cost of investments owned at June 30, 2000 for federal income tax
purposes for BGIF, BGEMF and GSCSF was substantially the same as the cost for
financial reporting purposes. The gross unrealized appreciation and depreciation
of investments excluding foreign currency at June 30, 2000 were as follows:
<TABLE>
<CAPTION>
BGIF BGEMF GSCSF
---- ----- -----
<S> <C> <C> <C>
Gross Appreciation ................. $ 231,725,173 $ 20,628,596 $ 104,819,444
Gross Depreciation ................. (30,218,130) (5,468,591) (6,327,021)
------------- ------------- -------------
Net Unrealized Appreciation .. $ 201,507,043 $ 15,160,005 $ 98,492,423
============= ============= =============
</TABLE>
Forward foreign currency contracts represent commitments to purchase or
sell a specified amount of foreign currency at a future date and at a future
price. Risks may arise from the potential inability of a counterparty to meet
the terms of a contract and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
--------------------------------------------------------------------------------
128
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
-------------------------------
Note D -- Repurchase Agreements
-------------------------------
Collateral underlying repurchase agreements takes the form of either cash
or fully negotiable U.S. government securities. Repurchase agreements are fully
collateralized (including the interest earned thereon) and such collateral is
marked-to-market daily while the agreements remain in force. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Funds will require the seller to deposit additional collateral by
the next business day. If the request for additional collateral is not met, or
the seller defaults, the Funds maintain the right to sell the collateral and may
claim any resulting loss against the seller. The Company's Board of Directors
has established standards to evaluate the creditworthiness of broker-dealers and
banks which engage in repurchase agreements with the Funds.
---------------------------------------
Note E -- Transactions in Capital Stock
---------------------------------------
There are 1,000,000,000 shares of $0.10 par value capital stock authorized
for each of the Funds. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31,
2000 1999 2000 1999
(Unaudited) (Audited) (Unaudited) (Audited)
------------------------------------------------------------------------------------------------------------------
Shares Amount
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o Baillie Gifford International Fund
Shares sold 2,059,704 4,523,096 $ 53,365,190 $ 100,665,748
Shares issued in reinvestment of
dividends and distributions -- 2,779,331 -- 68,228,567
Shares repurchased (3,135,287) (4,948,683) (80,559,715) (109,742,262)
------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (1,075,583) 2,353,744 $ (27,194,525) $ 59,152,053
------------------------------------------------------------------------------------------------------------------
o Baillie Gifford Emerging Markets Fund
Shares sold 1,888,728 2,821,366 $ 25,317,863 $ 26,596,653
Shares repurchased (1,869,562) (2,432,410) (24,454,194) (22,109,690)
------------------------------------------------------------------------------------------------------------------
Net increase 19,166 388,956 $ 863,669 $ 4,486,963
------------------------------------------------------------------------------------------------------------------
o The Guardian Small Cap Stock Fund
Shares sold 3,518,719 3,451,011 $ 65,354,643 $ 44,869,426
Shares issued in reinvestment of
dividends -- 21,302 -- 327,392
Shares repurchased (2,275,581) (3,624,740) (41,202,342) (45,310,107)
------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 1,243,138 (152,427) $ 24,152,301 $ (113,289)
------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------
Note F -- Line of Credit
------------------------
A $100,000,000 line of credit available to all of the Funds and other
related Guardian Funds has been established with State Street Bank and Trust
Company and Bank of Montreal. The rate of interest charged on any borrowing is
based upon the prevailing Federal Funds rate at the time of the loan plus .50%
calculated on a 360 day basis per annum. For the period ended June 30, 2000,
none of the Funds borrowed against this line of credit.
The Funds are obligated to pay State Street Bank and Trust Company and
Bank of Montreal a commitment fee computed at a rate of .08% per annum on the
average daily unused portion of the revolving credit.
--------------------------------------------------------------------------------
129
<PAGE>
--------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
-------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
----------------------
Common Stocks -- 98.2%
----------------------
Shares Value
--------------------------------------------------------------------------------
Advertising -- 1.0%
100,000 Omnicom Group, Inc. $ 8,906,250
--------------------------------------------------------------------------------
Bank -- 3.9%
400,000 Chase Manhattan Corp. 18,425,000
100,000 State Street Corp. 10,606,250
140,000 Zions Bancorporation 6,424,688
-----------
35,455,938
--------------------------------------------------------------------------------
Bank-Midwest -- 0.7%
100,000 Fifth Third Bancorp 6,325,000
--------------------------------------------------------------------------------
Computer & Peripherals -- 10.5%
320,000 Cisco Systems, Inc.* 20,340,000
330,000 Dell Computer Corp.* 16,273,125
225,000 EMC Corp.* 17,310,938
135,000 International Business Machines Corp. 14,790,937
180,000 Network Appliance, Inc.* 14,490,000
150,000 Sun Microsystems, Inc.* 13,640,625
-----------
96,845,625
--------------------------------------------------------------------------------
Computer Software & Services -- 4.5%
100,000 Adobe Systems, Inc. 13,000,000
200,000 Microsoft Corp.* 16,000,000
150,000 Oracle Corp.* 12,609,375
-----------
41,609,375
--------------------------------------------------------------------------------
Diversified Companies -- 3.1%
240,000 Honeywell International, Inc. 8,085,000
300,000 Tyco International Ltd. 14,212,500
100,000 United Technologies Corp. 5,887,500
-----------
28,185,000
--------------------------------------------------------------------------------
Drug -- 8.2%
75,000 Biogen, Inc.* 4,837,500
150,000 Immunex Corp.* 7,415,625
125,000 Lilly (Eli) & Co. 12,484,375
120,000 MedImmune, Inc.* 8,880,000
180,000 Merck & Co., Inc. 13,792,500
300,000 Pfizer, Inc. 14,400,000
275,000 Schering-Plough Corp. 13,887,500
-----------
75,697,500
--------------------------------------------------------------------------------
Drugstore -- 0.9%
200,000 CVS Corp. 8,000,000
--------------------------------------------------------------------------------
Electric Utility - Central -- 1.0%
200,000 AES Corp. (The)* 9,125,000
--------------------------------------------------------------------------------
Electrical Equipment -- 3.2%
35,000 Corning Inc. 9,445,625
375,000 General Electric Co. 19,875,000
-----------
29,320,625
--------------------------------------------------------------------------------
Electronics -- 2.0%
100,000 Flextronics International, Ltd.* 6,868,750
100,000 JDS Uniphase Corp.* 11,987,500
-----------
18,856,250
--------------------------------------------------------------------------------
Entertainment -- 3.4%
200,000 Clear Channel Communications, Inc.* 15,000,000
215,000 Time Warner, Inc. 16,340,000
-----------
31,340,000
--------------------------------------------------------------------------------
Financial Services - Diversified -- 5.7%
300,000 American Express Co. 15,637,500
156,250 American International Group, Inc. 18,359,375
300,000 Citigroup, Inc. 18,075,000
-----------
52,071,875
--------------------------------------------------------------------------------
Foreign Telecommunications -- 1.5%
200,000 Nortel Networks Corp. 13,650,000
--------------------------------------------------------------------------------
Grocery -- 1.0%
200,000 Safeway Inc.* 9,025,000
--------------------------------------------------------------------------------
Household Products -- 1.2%
185,000 Colgate-Palmolive Co. 11,076,875
--------------------------------------------------------------------------------
Insurance - Life -- 1.2%
320,000 AXA Financial, Inc. 10,880,000
--------------------------------------------------------------------------------
Internet -- 1.7%
300,000 America Online, Inc.* 15,825,000
--------------------------------------------------------------------------------
Medical Supplies -- 3.6%
150,000 Cardinal Health, Inc. 11,100,000
120,000 Johnson & Johnson 12,225,000
200,000 Medtronic, Inc. 9,962,500
-----------
33,287,500
--------------------------------------------------------------------------------
Metals & Mining - Diversified -- 1.2%
380,000 Alcoa, Inc. 11,020,000
--------------------------------------------------------------------------------
Paper & Forest Products -- 1.0%
300,000 International Paper Co. 8,943,750
--------------------------------------------------------------------------------
Precision Instrument -- 0.5%
80,000 KLA-Tencor Corp.* 4,685,000
--------------------------------------------------------------------------------
Recreation -- 1.1%
270,000 Harley-Davidson, Inc. 10,395,000
--------------------------------------------------------------------------------
Retail Building Supply -- 1.6%
165,000 Home Depot, Inc. (The) 8,239,687
160,000 Lowe's Companies, Inc. 6,570,000
-----------
14,809,687
--------------------------------------------------------------------------------
Retail - Special Lines -- 8.1%
400,000 Bed Bath & Beyond Inc.* 14,500,000
200,000 Best Buy Co., Inc.* 12,650,000
370,000 Circuit City Stores, Inc. -
Circuit City Group 12,279,375
325,000 Gap, Inc. (The) 10,156,250
700,000 Intimate Brands Inc. Class "A" 13,825,000
160,000 Tiffany & Co. 10,800,000
-----------
74,210,625
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
130
<PAGE>
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Retail Store -- 5.7%
280,000 Costco Wholesale Corp.* $ 9,240,000
300,000 Kohl's Corp.* 16,687,500
200,000 Target Corp. 11,600,000
250,000 Wal-Mart Stores, Inc. 14,406,250
------------
51,933,750
--------------------------------------------------------------------------------
Securities Brokerage -- 2.5%
200,000 Donaldson, Lufkin &
Jenrette, Inc - DLJ 8,487,500
50,000 Lehman Brothers Holdings, Inc. 4,728,125
300,000 Schwab (Charles) Corp. 10,087,500
------------
23,303,125
--------------------------------------------------------------------------------
Semiconductor -- 6.7%
125,000 Intel Corp. 16,710,938
120,000 Motorola, Inc. 3,487,500
100,000 PMC - Sierra, Inc.* 17,768,750
30,000 SDL, Inc.* 8,555,625
200,000 Vitesse Semiconductor Corp.* 14,712,500
------------
61,235,313
--------------------------------------------------------------------------------
Semiconductor - Capital Equipment -- 4.6%
185,000 Altera Corp.* 18,858,437
100,000 Applied Materials, Inc.* 9,062,500
250,000 Novellus Systems, Inc.* 14,140,625
------------
42,061,562
--------------------------------------------------------------------------------
Telecommunications Equipment -- 5.3%
200,000 Lucent Technologies Inc. 11,850,000
140,000 QUALCOMM Inc.* 8,400,000
200,000 Scientific-Atlanta, Inc. 14,900,000
200,000 Tellabs, Inc.* 13,687,500
------------
48,837,500
--------------------------------------------------------------------------------
Thrift -- 1.6%
115,000 Fannie Mae 6,001,562
220,400 Freddie Mac 8,926,200
------------
14,927,762
--------------------------------------------------------------------------------
Total Common Stocks and Total Investment Securities -- 98.2%
(Cost $547,410,475) 901,845,887
--------------------------------------------------------------------------------
----------------------------
Repurchase Agreement -- 2.2%
----------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
(including accrued interest)
--------------------------------------------------------------------------------
$ 19,800,000 Collateralized by $20,275,000
U.S. Treasury Notes 51/2%,
due 2/28/03, with a value of
$20,207,508 (with State Street Bank
& Trust Company, 6.20%,
dated 6/30/00, due 7/3/00,
delivery value $19,810,230) $ 19,803,410
--------------------------------------------------------------------------------
Excess Of Liabilities Over
Cash And Other Assets -- (-0.4%) (3,337,170)
--------------------------------------------------------------------------------
Net Assets -- 100.0% $ 918,312,127
--------------------------------------------------------------------------------
Net Asset Value
Per Outstanding Share
($918,312,127 / 24,759,649
shares of outstanding) $ 37.09
=============
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
131
<PAGE>
--------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
-------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS:
Investment securities, at value
(cost $547,410,475) $901,845,887
Repurchase agreement (cost $19,803,410) 19,803,410
Cash 85,937
Dividends receivable 167,275
Receivable for capital shares sold 41,846
Prepaid insurance expense 5,000
------------
TOTAL ASSETS 921,949,355
------------
LIABILITIES:
Payable for securities purchased 2,594,216
Payable for capital shares repurchased 468,350
Accrued expenses:
Advisory fee 375,750
GIAC administrative service fee 150,000
Other 48,912
------------
TOTAL LIABILITIES 3,637,228
------------
NET ASSETS $918,312,127
============
NET ASSETS consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000, outstanding
24,759,649 shares) $ 24,759,649
Additional paid-in capital 364,881,632
Undistributed net investment income 741,151
Undistributed net realized gain on investments 173,494,283
Net unrealized appreciation of investments 354,435,412
------------
NET ASSETS $918,312,127
============
NET ASSET VALUE
PER OUTSTANDING SHARE
($918,312,127 / 24,759,649
shares outstanding) $ 37.09
============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Dividends (Net of foreign withholding
tax of $563) $ 2,034,352
Interest and other 866,605
------------
Total Income 2,900,957
------------
Expenses:
Investment advisory fee 2,297,392
GIAC administrative service fee 291,528
Custodian fees 47,857
Postage 29,019
Auditing and legal fees 19,251
Taxes and other 15,519
Insurance and dues 9,558
Directors' fees and expenses 7,152
Printing 5,132
------------
Total Expenses Before Custody Credits 2,722,408
Less:Custody Credits (1,618)
------------
Net Expenses 2,720,790
------------
Net Investment Income 180,167
------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain 46,103,137
Change in net unrealized appreciation (23,553,201)
------------
Net Realized Gain and Change in Net
Unrealized Appreciation on Investments 22,549,936
------------
Net Increase in Net Assets from Operations $ 22,730,103
============
See notes to financial statements.
--------------------------------------------------------------------------------
132
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 2000 (Unaudited) and
for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
2000 December 31,
(Unaudited) 1999
----------- ------------
<S> <C> <C>
Operations:
Net investment income $ 180,167 $ 700,117
Net realized gain on investments 46,103,137 128,491,663
Change in net unrealized appreciation (23,553,201) 89,602,937
------------- -------------
Net increase in net assets from operations 22,730,103 218,794,717
------------- -------------
Distributions to Shareholder:
Net investment income -- (2,362,927)
Net realized gain from investment transactions -- (63,536,476)
------------- -------------
Total distributions -- (65,899,403)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares 36,113,940 112,347,438
Proceeds from reinvestment of dividends and distributions to shareholder -- 65,899,403
Cost of shares repurchased (111,903,925) (174,977,296)
------------- -------------
Net (decrease) increase from capital share transactions (75,789,985) 3,269,545
------------- -------------
Total (Decrease) Increase in Net Assets (53,059,882) 156,164,859
Net Assets:
Beginning of period 971,372,009 815,207,150
============= =============
End of period $ 918,312,127 $ 971,372,009
============= =============
Undistributed Net Investment Income, at End of Period $ 741,151 $ 560,984
------------- -------------
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
133
<PAGE>
--------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
------------------------------------
1 -- Significant Accounting Policies
------------------------------------
Value Line Centurion Fund, Inc. (the "Fund") is an open-end diversified
management investment company registered under the Investment Company Act of
1940, as amended, whose primary investment objective is long-term growth of
capital. The Fund's portfolio will usually consist of common stocks ranked 1 or
2 for year-ahead performance by The Value Line Investment Survey, one of the
nation's major investment advisory services.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
(A) Security Valuation
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities and for securities traded in the
over-the-counter market, the security is valued at the midpoint between the
latest available and representative asked and bid prices. Short-term instruments
with maturities of 60 days or less are valued at amortized cost, which
approximates market value. Short-term instruments with maturities greater than
60 days, at the date of purchase, are valued at the midpoint between the latest
available and representative asked and bid prices, and commencing 60 days prior
to maturity such securities are valued at amortized cost. Other assets and
securities for which market valuations are not readily available are valued at
fair value as the Board of Directors may determine in good faith.
(B) Repurchase Agreements
In connection with transactions in repurchase agreements, the Fund's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the Fund has the right to liquidate the collateral and
apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
(C) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders. Therefore, no federal income tax
provision is required.
(D) Dividends and Distributions
It is the Fund's policy to distribute to its shareholders, as dividends
and as capital gains distributions, all the net investment income for the year
and all net capital gains realized by the Fund, if any. Such distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. All dividends or distributions will be
payable in shares of the Fund at the net asset value on the ex-dividend date.
This policy is, however, subject to change at any time by the Board of
Directors.
(E) Amortization
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income on investments adjusted for amortization of dis-
--------------------------------------------------------------------------------
134
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
count, including original issue discount required for federal income tax
purposes, is earned from settlement date and recognized on the accrual basis.
Dividend income is recorded on the ex-dividend date.
------------------------------------------------------------
2 -- Capital Share Transactions, Dividends and Distributions
------------------------------------------------------------
Shares of the Fund are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance and Annuity Company, Inc.
(GIAC). Transactions in capital stock were as follows:
Six Months
Ended
June 30, Year Ended
2000 December 31,
(Unaudited) 1999
----------- ------------
Shares sold 1,013,849 3,485,591
Shares issued in reinvestment
of dividends and distributions -- 2,140,286
----------- -----------
1,013,849 5,625,877
Shares repurchased 3,171,471 5,492,925
----------- -----------
Net (decrease) increase (2,157,622) 132,952
----------- -----------
Dividends per share from net
investment income $ -- $ .09
=========== ===========
Distributions per share from
net realized gains $ -- $ 2.42
=========== ===========
--------------------------------------
3 -- Purchases and Sales of Securities
--------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Six Months Ended
June 30, 2000
(Unaudited)
----------------
PURCHASES:
Investment Securities $239,501,583
============
SALES:
Investment Securities $317,559,361
============
At June 30, 2000, the aggregate cost of investment securities and
repurchase agreement for federal income tax purposes was $567,245,553. The
aggregate appreciation and depreciation of investments at June 30, 2000, based
on a comparison of investment values and their costs for federal income tax
purposes was $369,917,006 and $15,513,262 respectively, resulting in a net
appreciation of $354,403,744.
------------------------------------------------------------------------
4 -- Investment Advisory Contract, Management Fees and Transactions with
Interested Parties
------------------------------------------------------------------------
An advisory fee of $2,297,392 was paid or payable to Value Line, Inc. (the
"Adviser"), the Fund's investment adviser, for the six months ended June 30,
2000. This was computed at the rate of 1/2 of 1% of the average daily net assets
of the Fund during the period and paid monthly. The Adviser provides research,
investment programs, supervision of the investment portfolio and pays costs of
administrative services, office space, equipment and compensation of
administrative, bookkeeping, and clerical personnel necessary for managing the
affairs of the Fund. The Adviser also provides persons, satisfactory to the
Fund's Board of Directors, to act as officers and employees of the Fund and pays
their salaries and wages. The Fund bears all other costs and expenses.
Certain officers and directors of the Adviser and Value Line Securities,
Inc., (the Fund's distributor and a registered broker/dealer) are also officers
and directors of the Fund. During the six months ended June 30, 2000, the Fund
paid brokerage commissions totalling $214,393 to Value Line Securities, Inc., a
wholly owned subsidiary of the Adviser, which clears its transactions through
unaffiliated brokers.
The Fund has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contract-owner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the six months ended June 30, 2000, the
Fund incurred expenses of $291,528 in connection with such services rendered by
GIAC.
--------------------------------------------------------------------------------
135
<PAGE>
--------------------------------------------------------------------------------
Value Line Centurion Fund, Inc.
-------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 2000 -----------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .................... $ 36.09 $ 30.44 $ 25.52 $ 24.83 $ 24.25 $ 17.83
-------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income ................ .01 .03 .09 .09 .08 .12
Net gains on securities
(both realized and unrealized) ..... .99 8.13 6.67 5.30 3.71 6.96
-------- -------- -------- -------- -------- --------
Total from investment operations ..... 1.00 8.16 6.76 5.39 3.79 7.08
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income . -- (0.09) (0.09) (.09) (.12) (0.10)
Distributions from capital gains ..... -- (2.42) (1.75) (4.61) (3.09) (0.56)
-------- -------- -------- -------- -------- --------
Total distributions .................. -- (2.51) (1.84) (4.70) (3.21) (0.66)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ........... $ 37.09 $ 36.09 $ 30.44 $ 25.52 $ 24.83 $ 24.25
======== ======== ======== ======== ======== ========
Total return** ........................... 2.77%+ 28.23% 27.47% 21.39% 17.34% 40.08%
======== ======== ======== ======== ======== ========
Ratios/Supplemental data:
Net assets, end of period
(in thousands) ....................... $918,312 $971,372 $815,207 $720,091 $639,341 $525,449
Ratio of expenses to
average net assets ................... 0.59%*(1) 0.59%(1) 0.59%(1) 0.60%(1) 0.59%(1) 0.62%
Ratio of net investment income
to average net assets ................ .04%* .08% .31% .35% .36% .60%
Portfolio turnover rate ................ 27%+ 64% 112% 85% 141% 114%
</TABLE>
(+) Not annualized
(*) Annualized
** Total returns do not reflect the effects of charges deducted under the
terms of GIAC's variable contracts. Including such charges would reduce
the total returns for all periods shown.
(1) Ratio reflects expenses grossed up for custody credit arrangement. The
ratio of expenses to average net assets net of custody credits would not
have changed.
See notes to financial statements.
--------------------------------------------------------------------------------
136
<PAGE>
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
137
<PAGE>
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Common Stocks -- 57.4%
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Advertising -- 1.2%
36,000 Interpublic Group of Companies, Inc. $ 1,548,000
177,000 Omnicom Group, Inc. 15,764,062
16,000 TMP Worldwide, Inc.* 1,181,000
------------
18,493,062
--------------------------------------------------------------------------------
Aerospace/Defense -- 0.6%
193,000 General Dynamics Corp. 10,084,250
--------------------------------------------------------------------------------
Bank-Midwest -- 0.6%
68,000 Fifth Third Bancorp 4,301,000
70,000 Northern Trust Corp. 4,554,375
37,485 Old Kent Financial Corp. 1,002,724
------------
9,858,099
--------------------------------------------------------------------------------
Beverage-Alcoholic -- 0.2%
62,000 Coors (Adolph) Co. Class "B" 3,751,000
--------------------------------------------------------------------------------
Cable TV -- 1.0%
86,000 Cablevision Systems Corp. Class "A"* 5,837,250
100,000 Comcast Corp. Class "A"* 4,050,000
202,000 EchoStar Communications Corp. Class "A"* 6,688,094
------------
16,575,344
--------------------------------------------------------------------------------
Chemical-Diversified -- 0.2%
43,000 Millipore Corp. 3,241,125
--------------------------------------------------------------------------------
Chemical-Specialty -- 0.2%
58,000 Avery Dennison Corp. 3,893,250
--------------------------------------------------------------------------------
Computer & Peripherals -- 4.1%
66,000 Apple Computer, Inc.* 3,456,750
90,000 Cabletron Systems, Inc.* 2,272,500
400,844 Cisco Systems, Inc.* 25,478,647
91,000 Dell Computer Corp.* 4,487,437
70,000 EMC Corp.* 5,385,625
40,000 Hewlett-Packard Co. 4,995,000
29,000 SanDisk Corp.* 1,774,438
100,000 Silicon Storage Technology, Inc.* 8,831,250
98,000 Sun Microsystems, Inc.* 8,911,875
------------
65,593,522
--------------------------------------------------------------------------------
Computer Software & Services -- 8.6%
32,000 Actuate Corp.* 1,708,000
95,000 Adobe Systems, Inc. 12,350,000
64,000 BroadVision, Inc.* 3,252,000
23,000 Business Objects S.A. (ADR)* 2,026,875
146,000 Citrix Systems, Inc.* 2,764,875
158,000 Comverse Technology, Inc.* 14,694,000
210,000 Electronic Data Systems Corp 8,662,500
64,000 Fiserv, Inc.* 2,768,000
2,000 Inktomi Corp.* 236,500
22,000 IONA Technologies PLC (ADR)* 1,386,000
331,000 Mercury Interactive Corp.* 32,024,250
131,000 Microsoft Corp.* 10,480,000
344,250 Paychex, Inc. 14,458,500
41,000 Rational Software Corp.* 3,810,438
167,000 Siebel Systems, Inc.* 27,314,937
------------
137,936,875
--------------------------------------------------------------------------------
Diversified Companies -- 1.0%
28,000 Textron, Inc. 1,520,750
228,000 Tyco International Ltd. 10,801,500
62,000 United Technologies Corp. 3,650,250
------------
15,972,500
--------------------------------------------------------------------------------
Drug -- 4.2%
158,000 Biogen, Inc.* 10,191,000
159,000 Biovail Corporation International *8,814,562
110,000 Forest Laboratories, Inc.* 11,110,000
10,000 Gene Logic Inc.* 356,875
52,000 Ivax Corp.* 2,158,000
147,000 MedImmune, Inc.* 10,878,000
172,000 Millennium Pharmaceuticals, Inc.* 19,242,500
27,000 Sepracor, Inc.* 3,256,875
40,000 Titan Pharmaceuticals, Inc.* 1,720,000
------------
67,727,812
--------------------------------------------------------------------------------
Electric Utility-Central -- 0.9%
306,000 AES Corp. (The)* 13,961,250
--------------------------------------------------------------------------------
Electric Utility-West -- 0.4%
88,000 Calpine Corp.* 5,786,000
--------------------------------------------------------------------------------
Electrical Equipment -- 3.2%
36,000 AVX Corp. 825,750
75,000 Brooks Automation, Inc.* 4,795,312
18,000 Corning Inc. 4,857,750
545,000 General Electric Co. 28,885,000
24,000 Kopin Corp.* 1,662,000
24,000 Power-One, Inc.* 2,734,500
108,000 Semtech Corp.* 8,260,313
------------
52,020,625
--------------------------------------------------------------------------------
Electronics -- 3.6%
36,000 Adaptive Broadband Corp.* 1,323,000
162,000 Gemstar International Group Ltd.* 9,955,406
156,000 JDS Uniphase Corp.* 18,700,500
349,687 Symbol Technologies, Inc. 18,883,098
53,000 Titan Corp.* 2,371,750
78,000 Varian Medical Systems, Inc.* 3,051,750
78,000 Vishay Intertechnology, Inc.* 2,959,125
------------
57,244,629
--------------------------------------------------------------------------------
Entertainment -- 2.1%
39,000 AMFM Inc.* 2,691,000
86,315 Clear Channel Communications, Inc.* 6,473,625
75,000 Time Warner, Inc. 5,700,000
116,000 USA Networks, Inc.* 2,508,500
33,000 Univision Communications, Inc.
Class "A"* 3,415,500
182,280 Viacom, Inc. Class "B"* 12,429,218
------------
33,217,843
--------------------------------------------------------------------------------
Financial Services-Diversified -- 0.2%
65,000 Citigroup, Inc. 3,916,250
--------------------------------------------------------------------------------
Food Processing -- 0.5%
114,000 Quaker Oats Company (The) 8,564,250
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
138
<PAGE>
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
Food Wholesalers -- 0.1%
50,000 SYSCO Corp. $ 2,106,250
--------------------------------------------------------------------------------
Foreign Telecommunication -- 2.0%
160,000 Ericsson (L.M.) Telephone Co.
(ADR) Class "B" 3,200,000
96,000 Nokia Corp. (ADR) 4,794,000
212,000 Nortel Networks Corp. 14,469,000
60,000 Telefonos de Mexico S.A. de CV (ADR) 3,427,500
152,500 Vodafone AirTouch PLC (ADR) 6,319,219
-----------
32,209,719
--------------------------------------------------------------------------------
Furniture/Home Furnishings -- 0.1%
90,000 Ethan Allen Interiors, Inc. 2,160,000
--------------------------------------------------------------------------------
Industrial Services -- 0.3%
140,000 Robert Half International, Inc.* 3,990,000
20,000 TeleTech Holdings, Inc.* 621,250
-----------
4,611,250
--------------------------------------------------------------------------------
Internet -- 0.8%
70,000 America Online, Inc.* 3,692,500
66,000 Macromedia, Inc.* 6,381,375
12,900 VeriSign, Inc.* 2,276,850
-----------
12,350,725
--------------------------------------------------------------------------------
Machinery -- 0.8%
56,000 Dover Corp. 2,271,500
150,000 PRI Automation, Inc.* 9,808,594
-----------
12,080,094
--------------------------------------------------------------------------------
Medical Supplies -- 1.8%
214,000 Allergan, Inc. 15,943,000
82,000 Alpharma Inc. Class "A" 5,104,500
52,000 Johnson & Johnson 5,297,500
19,000 Techne Corp.* 2,470,000
-----------
28,815,000
--------------------------------------------------------------------------------
Natural Gas-Diversified -- 1.1%
282,000 Enron Corp 18,189,000
--------------------------------------------------------------------------------
Office Equipment & Supplies -- 0.0%
11,000 Lexmark International, Inc. Class "A"* 739,750
--------------------------------------------------------------------------------
Precision Instrument -- 1.3%
15,256 Agilent Technologies, Inc.* 1,125,130
81,000 LTX Corp.* 2,829,938
38,400 Newport Corp. 4,123,200
104,000 Waters Corp.* 12,980,500
-----------
21,058,768
--------------------------------------------------------------------------------
Publishing -- 0.1%
26,000 Reader's Digest Association, Inc. Class "A" 1,033,500
--------------------------------------------------------------------------------
Recreation -- 0.5%
222,000 Harley-Davidson, Inc. 8,547,000
--------------------------------------------------------------------------------
Restaurant -- 0.3%
145,000 Brinker International, Inc.* 4,241,250
--------------------------------------------------------------------------------
Retail Building Supply -- 1.1%
32,000 Fastenal Co. $ 1,620,000
225,000 Home Depot, Inc. (The) 11,235,938
115,000 Lowe's Companies, Inc. 4,722,187
-----------
17,578,125
--------------------------------------------------------------------------------
Retail-Special Lines -- 2.2%
101,000 AnnTaylor Stores Corp.* 3,345,625
10,000 Audiovox Corp. Class "A"* 220,625
181,000 Bed Bath & Beyond Inc.* 6,561,250
164,000 Circuit City Stores, Inc.-
Circuit City Group 5,442,750
150,750 Dollar Tree Stores, Inc.* 5,964,047
100,250 Gap, Inc. (The) 3,132,813
12,810 Intimate Brands, Inc. Class "A" 252,997
20,000 RadioShack Corp. 947,500
131,800 Tiffany & Co. 8,896,500
-----------
34,764,107
--------------------------------------------------------------------------------
Retail Store -- 1.7%
196,000 Kohl's Corp.* 10,902,500
94,000 Target Corp. 5,452,000
196,000 Wal-Mart Stores, Inc. 11,294,500
-----------
27,649,000
--------------------------------------------------------------------------------
Semiconductor -- 6.0%
47,000 Advanced Micro Devices, Inc.* 3,630,750
57,000 Amkor Technology, Inc.* 2,012,813
42,000 Analog Devices, Inc.* 3,192,000
22,000 Applied Micro Circuits Corp.* 2,172,500
67,000 Atmel Corp.* 2,470,625
24,000 Credence Systems Corp.* 1,324,500
68,000 Cypress Semiconductor Corp.* 2,873,000
23,000 Integrated Device Technology, Inc.* 1,377,125
78,000 International Rectifier Corp.* 4,368,000
90,000 Lam Research Corp.* 3,375,000
25,000 Lattice Semiconductor Corp.* 1,728,125
156,000 Linear Technology Corp. 9,974,250
52,000 Maxim Integrated Products, Inc.* 3,532,750
4,000 National Semiconductor Corp.* 227,000
158,000 PMC-Sierra, Inc.* 28,074,625
134,000 QLogic Corp.* 8,852,375
8,000 SDL, Inc.* 2,281,500
100,000 TelCom Semiconductor, Inc.* 4,037,500
101,250 TranSwitch Corp.* 7,815,234
46,000 Varian Semiconductor Equipment Associates, Inc.* 2,889,375
-----------
96,209,047
--------------------------------------------------------------------------------
Telecommunications Equipment -- 2.8%
80,000 ADC Telecommunications, Inc.* 6,710,000
66,000 CommScope, Inc.* 2,706,000
34,000 Polycom, Inc.* 3,199,187
78,000 Powerwave Technologies, Inc.* 3,432,000
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
139
<PAGE>
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
-------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 2000 (Unaudited) (Continued)
Shares Value
--------------------------------------------------------------------------------
Telecommunications Equipment -- 2.8% - con't
94,000 QUALCOMM, Inc.* $ 5,640,000
178,000 Scientific-Atlanta, Inc. 13,261,000
70,000 Tekelec* 3,373,125
74,000 Tellabs, Inc.* 5,064,375
100,000 Westell Technologies, Inc. Class "A"* 1,500,000
------------
44,885,687
--------------------------------------------------------------------------------
Telecommunication Services -- 1.0%
5,000 ADTRAN, Inc.* 299,375
43,000 ALLTEL Corp. 2,663,312
76,000 MediaOne Group, Inc.* 5,044,500
96,000 Metromedia Fiber Network, Inc. Class "A"* 3,810,000
72,000 Nextel Communications, Inc. Class "A"* 4,405,500
------------
16,222,687
--------------------------------------------------------------------------------
Wireless Networking -- 0.6%
110,000 RF Micro Devices Inc.* 9,638,750
--------------------------------------------------------------------------------
Total Common Stocks
(Cost $495,213,716) 922,927,395
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
U.S. Treasury Obligations -- 11.8%
--------------------------------------------------------------------------------
$29,000,000 U.S. Treasury Notes 5.25%, due 5/31/01 $ 28,682,827
30,000,000 U.S. Treasury Notes 5.75%, due 6/30/01 29,784,390
15,000,000 U.S. Treasury Notes 6.25%, due 8/31/02 14,943,750
49,000,000 U.S. Treasury Notes 6.50%, due 10/15/06 49,515,789
59,500,000 U.S. Treasury Bonds 7.25%, due 8/15/22 66,751,562
--------------------------------------------------------------------------------
TotaL U.S. Treasury Obligations
(Cost $188,965,111) 189,678,318
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. Government Agency Obligations -- 20.0%
--------------------------------------------------------------------------------
$27,000,000 Federal Home Loan Mortgage Corp.
7.000%, due 2/15/03 $ 27,016,281
13,000,000 Federal Home Loan Mortgage Corp.
7.375%, due 5/15/03 13,123,643
59,000,000 Federal Home Loan Mortgage Corp.
5.000%, due 1/15/04 55,278,693
29,000,000 Federal National Mortgage Association
5.625%, due 5/14/04 27,617,222
17,000,000 Federal Home Loan Mortgage Corp.
6.250%, due 7/15/04 16,529,202
16,000,000 Federal National Mortgage Association
6.500%, due 8/15/04 15,689,696
10,000,000 Federal National Mortgage Association
7.125%, due 2/15/05 10,034,640
23,000,000 Federal National Mortgage Association
5.750%, due 6/15/05 21,794,432
9,000,000 Private Export Funding Corp. Series "J"
7.650%, due 5/15/06 9,251,289
15,000,000 Federal National Mortgage Association
7.125%, due 3/15/07 15,043,800
10,000,000 Federal National Mortgage Association
Pool 380188, 6.45%, due 4/1/08 9,453,125
10,000,000 Federal National Mortgage Association
5.250%, due 1/15/09 8,775,460
45,000,000 Federal National Mortgage Association
6.625%, due 9/15/09 43,398,000
27,000,000 Federal Home Loan Mortgage Corp.
7.000%, due 3/15/10 26,772,525
12,000,000 Federal National Mortgage Association
7.125%, due 6/15/10 12,011,508
12,000,000 Federal Home Loan Mortgage Corp.
6.75%, due 9/15/29 11,475,048
--------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $330,549,895) 323,264,564
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Corporate Bonds and Notes -- 1.1%
--------------------------------------------------------------------------------
Chemical - Diversified -- 0.3%
$5,000,000 Goodrich (B.F.) Co. (The) Notes
6.45%, due 4/15/08 $ 4,564,160
--------------------------------------------------------------------------------
Telecommunication Services-0.8%
5,000,000 AirTouch Communications, Inc. Notes
6.65%,due 5/1/08 4,682,765
4,000,000 MCI Communications Corp. Sr. Notes
6.50%,due 4/15/10 3,634,548
5,000,000 WorldCom, Inc. Sr. Notes
6.40%, due 8/15/05 4,739,375
--------------
13,056,688
--------------------------------------------------------------------------------
Total Corporate Bonds & Notes
(Cost $18,969,427) 17,620,848
--------------------------------------------------------------------------------
Total Investment Securities -- 90.3%
(Cost $1,033,698,149) 1,453,491,125
--------------------------------------------------------------------------------
See notes to financial statements.
* Non-income producing security.
--------------------------------------------------------------------------------
140
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Short-term Investments -- 8.9%
--------------------------------------------------------------------------------
Principal
Amount Value
--------------------------------------------------------------------------------
U.S. Government Agency Obligations -- 3.1%
$15,000,000 Federal Home Loan Mortgage Corp.
Discount Notes, 6.406%, 7/11/00 $ 14,973,310
15,000,000 Federal Home Loan Mortgage Corp.
Discount Notes, 6.45%, due 7/25/00 14,935,500
20,000,000 Student Loan Marketing Association
Floating Rate Notes, 6.124%,
due 11/16/00+ 20,000,000
--------------
49,908,810
--------------------------------------------------------------------------------
Repurchase Agreements -- 5.8%
(including accrued interest)
46,000,000 Collateralized by $36,450,000
U.S. Treasury Bonds 8.50%,
due 2/15/20, with a value of
$46,902,338 with Morgan Stanley
Dean Witter & Co., 6.30%,
dated 6/30/00, due 7/3/00,
delivery value$46,024,150) 46,008,050
47,700,000 Collateralized by $44,740,000
U.S. Treasury Bonds 6.625%,
due 2/15/27, with a value of $48,629,707
(with Warburg Dillon Read LLC,
6.20%, dated 6/30/00, due 7/3/00,
delivery value $47,724,645) 47,708,215
--------------
93,716,265
--------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(Cost $143,625,075) 143,625,075
--------------------------------------------------------------------------------
CASH AND OTHER ASSETS
LESS LIABILITIES -- 0.8% 12,118,054
--------------------------------------------------------------------------------
Net Assets -- 100.0% $1,609,234,254
--------------------------------------------------------------------------------
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,609,234,254 / 52,049,198
shares of beneficial interest outstanding) $ 30.92
==============
(+) Resets weekly. Rate shown is as of June 30, 2000.
See notes to financial statements.
--------------------------------------------------------------------------------
141
<PAGE>
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
-------------------------------------------
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 2000 (Unaudited)
ASSETS:
Investment securities, at value
(cost $1,033,698,149) $1,453,491,125
Short-term investments (cost $143,625,075) 143,625,075
Cash 121,420
Interest and dividends receivable 9,430,757
Receivable for securities sold 4,796,370
Receivable for trust shares sold 347,090
Prepaid insurance expense 9,000
--------------
TOTAL ASSETS 1,611,820,837
--------------
LIABILITIES:
Payable for trust shares repurchased 1,185,136
Payable for securities purchased 439,793
Accrued expenses:
Advisory fee 657,974
GIAC administrative service fee 230,000
Other 73,680
--------------
TOTAL LIABILITIES 2,586,583
--------------
NET ASSETS $1,609,234,254
==============
NET ASSETS CONSIST OF:
Shares of beneficial interest, at $0.01 par
value (authorized unlimited, outstanding
52,049,198 shares) $ 520,492
Additional paid-in capital 797,874,023
Undistributed net investment income 52,383,048
Undistributed net realized gain on investments 338,663,715
Net unrealized appreciation of investments 419,792,976
--------------
NET ASSETS $1,609,234,254
==============
NET ASSET VALUE PER
OUTSTANDING SHARE
($1,609,234,254 / 52,049,198
shares of beneficial interest outstanding) $ 30.92
==============
STATEMENT OF OPERATIONS
Six Months Ended
June 30, 2000 (Unaudited)
Investment Income:
Interest $ 24,186,944
Dividends (Net of foreign withholding
tax of $9,416) 1,149,649
------------
Total Income 25,336,593
------------
Expenses:
Investment advisory fee 4,025,045
GIAC administrative service fee 360,077
Custodian fees 83,264
Postage 45,000
Taxes and other 25,494
Audit and legal fees 19,250
Insurance and dues 15,826
Printing 12,453
Trustees' fees and expenses 7,152
------------
Total Expenses Before Custody Credits 4,593,561
Less: Custody Credits (4,441)
------------
Net Expenses 4,589,120
------------
Net Investment Income 20,747,473
------------
Net Realized and Unrealized Gain
On Investments:
Net realized gain 28,248,979
Net change in unrealized
appreciation 33,755,569
------------
Net Realized Gain and Change in
Unrealized Appreciation (Depreciation)
on Investments 62,004,548
------------
Net Increase in Net Assets from Operations $ 82,752,021
============
See notes to financial statements.
--------------------------------------------------------------------------------
142
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 2000 (Unaudited) and
for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 2000 December 31,
(Unaudited) 1999
------------- ------------
<S> <C> <C>
Operations:
Net investment income $ 20,747,473 $ 31,712,238
Net realized gain on investments 28,248,979 310,691,129
Change in net unrealized appreciation (depreciation) 33,755,569 (14,402,998)
--------------- ---------------
Net increase in net assets from operations 82,752,021 328,000,369
--------------- ---------------
Distributions to Shareholder:
Net investment income -- (15,437,565)
Net realized gain from investment transactions -- (79,625,333)
--------------- ---------------
Total distributions -- (95,062,898)
--------------- ---------------
Trust Share Transactions:
Proceeds from sale of shares 46,579,525 109,656,703
Proceeds from reinvestment of dividends and
distributions to shareholder -- 95,062,898
Cost of shares repurchased (131,978,091) (240,059,970)
--------------- ---------------
Net decrease from trust share transactions (85,398,566) (35,340,369)
--------------- ---------------
Total (Decrease) Increase in Net Assets (2,646,545) 197,597,102
Net Assets:
Beginning of period 1,611,880,799 1,414,283,697
=============== ===============
End of period $ 1,609,234,254 $ 1,611,880,799
=============== ===============
Undistributed Net Investment Income, at End of Period $ 52,383,048 $ 31,635,575
=============== ===============
</TABLE>
See notes to financial statements.
--------------------------------------------------------------------------------
143
<PAGE>
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
-------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
------------------------------------
1 -- Significant Accounting Policies
------------------------------------
Value Line Strategic Asset Management Trust (the "Trust") is an open-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended, which seeks to achieve a high total investment
return consistent with reasonable risk by investing primarily in a broad range
of common stocks, bonds and money market instruments. The Trust will attempt to
acheive its objective by following an asset allocation strategy based on data
derived from computer models for the stock and bond markets that shifts the
assets of the Trust among equity, debt and money market securities as the models
indicate and its investment adviser, Value Line, Inc. (the "Adviser"), deems
appropriate.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contigent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Trust in the preparation of its financial statements.
(A) Security Valuation.
Securities listed on a securities exchange and over-the-counter securities
traded on the NASDAQ national market are valued at the closing sales price on
the date as of which the net asset value is being determined. In the absence of
closing sales prices for such securities and for securities traded in the
over-the-counter market, the security is valued at the midpoint between the
latest available and representative bid and asked prices.
The Board of Trustees has determined that the value of bonds and other
fixed-income securities be calculated on the valuation date by reference to
valuations obtained from an independent pricing service which determines
valuations for normal institutional-size trading units of debt securities,
without exclusive reliance upon quoted prices. This service takes into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data in determining valuations.
Short-term instruments with maturities of 60 days or less are valued at
amortized cost which approximates market value. Short-term instruments with
maturities greater than 60 days, at the date of purchase, are valued at the
midpoint between the latest available and representative asked and bid prices,
and commencing 60 days prior to maturity such securities are valued at amortized
cost. Other assets and securities for which market valuations are not readily
available are valued at fair value as the Board of Trustees may determine in
good faith.
(B) Repurchase Agreements
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. In the event of default of the
obligation to repurchase, the Trust has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
(C) Federal Income Taxes
It is the Trust's policy to qualify under, and comply with, the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(D) Dividends and Distributions
It is the Trust's policy to distribute to its shareholders, as dividends
and as capital gains distributions, all the net investment income for the year
and all the net capital
--------------------------------------------------------------------------------
144
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
gains realized by the Trust, if any. Such distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. All dividends or distributions will be payable in shares
of the Trust at the net asset value on the ex-dividend date. This policy is,
however, subject to change at any time by the Board of Trustees.
(E) Amortization.
Discounts on debt securities are amortized to interest income over the
life of the security with a corresponding increase to the security's cost basis;
premiums on debt securities are not amortized.
(F) Investments.
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income, adjusted for amortization of discount, including
original issue discount required for federal income tax purposes, is earned from
settlement date and recognized on the accrual basis. Dividend income is recorded
on the ex-dividend date.
----------------------------------------------------------
2 -- Trust Share Transactions, Dividends and Distributions
----------------------------------------------------------
Shares of the Trust are available to the public only through the purchase
of certain contracts issued by The Guardian Insurance & Annuity Company, Inc.
(GIAC). Transactions in shares of beneficial interest in the Trust were as
follows:
Six Months Ended Year Ended
June 30, 2000 December 31,
(Unaudited) 1999
---------------- ------------
Shares sold 1,543,248 4,104,143
Shares issued
in reinvestment of dividends
and distributions -- 3,617,310
----------- -----------
1,543,248 7,721,453
Shares repurchased 4,344,670 8,941,008
----------- -----------
Net decrease (2,801,422) (1,219,555)
=========== ===========
Dividends per share from net
investment income $ -- $ .285
=========== ===========
Distributions per share from
net realized gains $ -- $ 1.48
=========== ===========
--------------------------------------
3 -- Purchases and Sales of Securities
--------------------------------------
Purchases and sales of investment securities, excluding short-term
investments, were as follows:
Six Months Ended
June 30,2000
(unaudited)
-----------------
PURCHASES:
U.S. Treasury and Government
Agency Obligations $193,446,593
Other Investment Securities 307,544,082
------------
$500,990,675
============
SALES & MATURITIES:
U.S. Treasury and Government
Agency Obligations $303,420,966
Other Investment Securities 154,421,790
------------
$457,842,756
============
At June 30, 2000, the aggregate cost of investment securities and
short-term securities for federal income tax purposes was $1,177,323,224. The
aggregate appreciation and depreciation of investments at June 30, 2000, based
on a comparison of investment values and their costs for federal income tax
purposes was $459,484,853 and $39,691,877, respectively, resulting in a net
appreciation of $419,792,976.
--------------------------------------------------------------------------------
4 -- Investment Advisory Contract, Management
Fees and Transactions with Affiliates
--------------------------------------------------------------------------------
An advisory fee of $4,025,045 was paid or payable to the Adviser, for the
six months ended June 30, 2000. This was computed at the rate of 1/2 of 1% of
the average daily net assets of the Trust during the period and paid monthly.
The Adviser provides research, investment programs, supervision of the
investment portfolio and pays costs of administrative services, office space,
equipment and compensation of administrative, bookkeeping and clerical personnel
necessary for managing the affairs of the Trust. The Adviser also provides
persons, satisfactory to the Trust's Board of Trustees, to act as officers and
employees of the Trust and pays their salaries and wages. The Trust bears all
other costs and expenses.
--------------------------------------------------------------------------------
145
<PAGE>
--------------------------------------------------------------------------------
Value Line Strategic Asset Management Trust
-------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited) (Continued)
Certain officers and directors of the Adviser and Value Line Securities,
Inc. (the Trust's distributor and a registered broker/dealer), are also officers
and trustees of the Trust. During the six months ended June 30, 2000, the Trust
paid brokerage commissions totalling $100,504 to Value Line Securities, Inc., a
wholly owned subsidiary of the Adviser, which clears its transactions through
unaffiliated brokers.
The Trust has an agreement with GIAC to reimburse GIAC for expenses
incurred in performing administrative and internal accounting functions in
connection with the establishment of contract-owner accounts and their ongoing
maintenance, printing and distribution of shareholder reports and providing
ongoing shareholder servicing functions. Such reimbursement is limited to an
amount no greater than $18.00 times the average number of accounts at the end of
each quarter during the year. During the six months ended June 30, 2000, the
Trust incurred expenses of $360,077 in connection with such services rendered by
GIAC.
--------------------------------------------------------------------------------
146
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 2000 -------------------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 29.39 $ 25.22 $ 22.13 $ 21.90 $ 20.27 $ 16.13
---------- ---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income ................. .43 .59 .30 .65 .53 .39
Net gains on securities (both realized
and unrealized) ..................... 1.10 5.34 5.43 2.65 2.56 4.17
---------- ---------- ---------- ---------- ---------- --------
Total from investment operations ...... 1.53 5.93 5.73 3.30 3.09 4.56
---------- ---------- ---------- ---------- ---------- --------
Less distributions:
Dividends from net investment income . -- (.29) (.68) (.55) (.37) (.26)
Distributions from capital gains ..... -- (1.47) (1.96) (2.52) (1.09) (.16)
---------- ---------- ---------- ---------- ---------- --------
Total distributions .................. -- (1.76) (2.64) (3.07) (1.46) (.42)
---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of period .......... $ 30.92 $ 29.39 $ 25.22 $ 22.13 $ 21.90 $ 20.27
---------- ---------- ---------- ---------- ---------- --------
Total return** .......................... 5.21%+ 24.32% 27.45% 15.66% 15.87% 28.54%
---------- ---------- ---------- ---------- ---------- --------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ........................ $1,609,234 $1,611,881 $1,414,284 $1,196,589 $1,072,785 $876,509
Ratio of expenses to average net assets . .57%*(1) .58%(1) .58%(1) .59%(1) .58%(1) .60%
Ratio of net investment income to average
net assets ............................ 2.57%* 2.13% 1.25% 3.08% 2.70% 2.18%
Portfolio turnover rate ................. 33%+ 70% 106% 58% 71% 63%
</TABLE>
+ Not annualized
* Annualized.
(1) Ratio reflects expenses grossed up for custody credit arrangement. The
ratio of expenses to average net assets net of custody credits would not
have changed.
** Total returns do not reflect the effects of charges deducted under the
terms of GIAC's variable contracts. Including such charges would reduce
the total returns for all periods shown.
See notes to financial statements.
--------------------------------------------------------------------------------
147
<PAGE>
[LOGO]
GUARDIAN(SM)
The Guardian Insurance & Annuity Company, Inc.
7 Hanover Square
New York, NY 10004
Pub. 3058 6/00 [RECYCLE LOGO]Printed on recycled paper
